Biannual Report on the Assets and Education Field

Building Expectations, Delivering Results:

Asset-Based Financial Aid and

the Future of Higher Education

July 2013


AEDI is indebted to countless individuals for their invaluable guidance in pulling together this report on assets and

education. In particular, the following scholars either co-authored specific chapters in the report and/or provided

detailed feedback on the overall report: Dr. Reid Cramer; Rachel Black; Dr. Terri Friedline; President of the Hatcher

Group, Ed Hatcher; Robert Johnston; Amy Saltzman; Robert Kelchen; Sally Kakoti; Melinda Lewis; Dr. Emily

Rauscher; Dr. Trina Williams Shanks; Dr. Margaret Sherrard Sherraden; and Thomas Showalter.

We would also like to thank the Hatcher Group for editing (substantive as well as copyediting) and designing this

report. It has been a valued partner in pulling together this report.

Finally, this report could not have been done without the generous support of the Lumina Foundation, Citi

Foundation, Ford Foundation, and the Charles Stewart Mott Foundation.

These individuals and organizations are not responsible for the quality or accuracy of the report, which is the sole

responsibility of AEDI, nor do they necessarily agree with any or all of the report’s findings and recommendations.

Preferred Citation

Assets and Education Initiative. (2013). Building Expectations, Delivering Results: Asset-Based Financial Aid and

the Future of Higher Education. In W. Elliott (Ed.), Biannual report on the assets and education field. Lawrence, KS:

Assets and Education Initiative (AEDI).


The Assets and Education Initiative (AEDI) is an office in the University of Kansas School of Social Welfare

(http://aedi.ku.edu). Its mission is to create and study innovations related to assets and economic well-being, with a focus on

the relationship between children’s savings and the educational outcomes of low-income and minority children as a way to

achieve the American dream.

The Context of Our Work

New directions for theory, research, and policy emerged with the publication of Sherraden’s seminal book, Assets and the

Poor (1991), which distinguished assets from income in terms of their impact on well-being, introducing the concept of

asset-based social welfare policies. The introduction of asset building into the social sciences set off a firestorm of development

over the last 20 years, leading to the documentation of the promising effects of assets and subsequent enactment of assetbuilding

programs. Initially, much of this development focused on families’ and households’ asset building and well-being.

The American Dream Demonstration (ADD) began in 1998, run by the Corporation for Enterprise Development, to

test whether lower-income families and households could save in subsidized savings accounts, referred to as Individual

Development Accounts (IDAs). The five-year ADD concluded with promising results, and the long-term effectiveness of

IDAs is still being tested (Richards & Thyer, 2011). During that same year, the Assets for Independence (AFI) Act was

passed into law, which established a federal grant program to provide nonprofits and government agencies with funds to offer

IDAs to lower-income families and households. As a result, there are over 200 AFI-supported IDA programs nationwide

(U.S. Department of Health and Human Services, 2012).

IDAs were originally proposed as accounts that would be automatically available to every citizen in the United States, accrue

interest, and limit or restrict use to preapproved expenses like home ownership, microenterprise, or education. Account

holders whose annual incomes fell below certain thresholds would be eligible to receive subsidies to incentivize and support

their saving. Sherraden initially proposed that IDAs would be opened early in life—ideally, at birth—to promote asset

building and well-being across the life span. Sherraden (1991) writes, “Because asset-based welfare is a long-term concept,

some of the best applications of IDAs would be for young people. Young people would be given specific information about

their IDAs from a very early age, would be encouraged to participate in investment decisions for the accounts, and would

begin planning for use of the accounts in the years ahead” (p. 222). As implemented, however, IDAs are short-term, assetbuilding

programs to assist families and households temporarily in establishing and maintaining self-sufficiency.

The gap between IDA proposals and their implementation created an opening for another savings vehicle that young people

could access. These are often called children’s savings accounts (CSAs). In addition to retaining the features of IDAs, such

as universal availability and subsidies for young people whose families and households meet income eligibility guidelines,

CSAs were to be opened automatically at birth. This way, young people could experience improved well-being as a result of

this long-term approach to asset-building. CSAs were tested in the field beginning in 2003 with the Saving for Education,

Entrepreneurship, and Downpayment (SEED) initiative, a national demonstration project in 12 locations across the country.

Shortly thereafter, the America Saving for Personal Investment, Retirement, and Education (ASPIRE) Act was introduced in

Congress to establish a national CSA policy that would open savings accounts automatically for all young people at birth.

As a concept, CSAs represent recognition of children’s savings as a strategy for improving well-being. During the past

two decades, a concerted, nationwide effort has sought to extend IDA-type accounts to children, with particular emphasis

on access for those from lower-income households. Key features of CSA program and policy design, including universal

and automatic access, enhance the impact on this target population by distributing accounts in a way that is equitable and

less dependent on individual households’ financial resources. This means that access to savings accounts would not depend

on whether a local bank offers a savings program or families and households have a surplus of financial resources to open

accounts for their children.

While CSAs are meant to promote asset accumulation for homeownership, retirement, and capitalizing a business venture,

there are important reasons for focusing CSAs on higher education. Of 801 registered voters surveyed, 40% believe that

making education more affordable should be the top priority of government. No other priority garnered favor from a larger

proportion of study participants (Goldberg, Friedman, & Boshara, 2010). Similarly, 58% of registered voters in the study

thought that the most effective use for CSAs would be to help families save for college.

In the past, education research has given considerable attention to income (Axinn, Duncan, & Thornton, 1997; Brooks-Gunn

& Duncan 1997; Duncan, Brooks-Gunn, & Smith, 1998) and excluded assets as a key variable in making use of economic

capital. However, in the last several years, the education and policy fields have shown increased interest in the possibilities of

using assets to improve children’s educational outcomes. Interest in CSAs has led to a growing need for turning research into

action. It is no longer good enough for the field simply to do good research.


The Biannual Report on the Assets and Education Field

In an attempt to translate existing research into publicly consumable forms, AEDI is producing a wide-ranging report on the

assets and education field. Our hope is that this will be the first of many biannual reports on the field. To make the research

more accessible to a broader audience, this report will include, in addition to rigorous academic papers, short synopses of

research studies, research briefs of each chapter, highlights or talking points, and infographics. AEDI also is constructing a

website to host the report and all other materials.

Themes of the First Biannual Report

Based on an emerging body of evidence that suggests assets can change the way children and families think about and

prepare for college, the papers in this first report reflect several themes. First, future U.S. economic competitiveness depends

in large part on moving financial aid policies away from dependency on student debt and toward asset-based approaches.

Second, savings (and especially CSAs) have distinct advantages over other financial aid strategies: outcomes in the shortterm

challenge of financing a college degree, the longer-term challenge of improving student academic readiness for college

and success in college, and the postcollege challenge of achieving financial health after graduation. Finally, while all students

would benefit from including asset approaches as part of the U.S. financial aid system, disadvantaged students particularly

need the superior educational outcomes that might be associated with asset accumulation, many of which are evident in the

experiences of their advantaged peers.

Asset-based approaches work by increasing students’ stake in their own educational futures, thereby making persistence and

success more likely. The simple act of opening an account for college may turn higher education into an important—instead

of an impossible—goal, with a clear strategy for overcoming the barrier of high costs. Saving may be seen as a way to enable

“people like me” to pay for college, which may make all the difference. For these reasons (and the fiscal and policy issues

surrounding traditional financial aid), CSAs may be considered a promising college-financing strategy, in addition to more

traditional financial aid products.

With warm regards,

William Elliott III, Director, Assets and Education Initiative

Senior Fellow, New America Foundation

Twente Hall

1545 Lilac Lane, Room 309

Lawrence, KS 66045-3129


(785) 864-2283


Table of Contents


Introduction: College Completion’s Role in the Transmission of Inequality 7

Chapter 1: From a Debt-Dependent to an Asset-Based Financial Aid Model 18

Chapter 2: Institutional Facilitation and CSA Effects 30

Chapter 3: CSAs as an Early Commitment Financial Aid Strategy 50

Chapter 4: From Disadvantaged Students to College Graduates: The Role of CSAs 63

Chapter 5: How CSAs Facilitate Saving and Asset Accumulation 78

Chapter 6: Policy Discussion 96


Table 1. Snapshot Comparing a Debt-Dependent Financial Aid Strategy to an

Asset-Dependent Strategy 28

Table 2. Practice and Policy Implications of Conceptualizing CSAs as Institutional Facilitators 45

Table 3. Changes in Children’s Attitudes and Behaviors During Different Stages of

Development, the Role of the Family, and CSAs 84

Table 4. The Institutional Context of Formal Banking Institutions for Low-Income Families

and Their Children 89


Figure 1. Rising Student Debt Is Associated With Lower Graduation Rates 21

Figure 2. Savings for College Are Associated With Higher Graduation Rates 24

Figure 3. Integration of Institutional Facilitation and Identity-Based Motivation Theories for

Understanding Asset Effects 32

Figure 4. Role of Institutional Facilitation in Academic Success 35

Figure 5. College Expectations, Enrollment, and Wilt 65


Figure 6. College Graduation Expectations in 2002 at a Two-Year or Four-Year College 66

Figure 7. Wilt—Expected to Graduate From College in 2002, Did Not Graduate From a

Two-Year or Four-Year College by 2009 66

Figure 8. Ever Enrolled in College by 2009 by Race and Income 67

Figure 9. Graduated From a Two-Year or Four-Year College by 2009 69

Figure 10. Percentages of Children’s Savings Account Ownership by Income and Race

(Ages 12 to 15) 83

Figure 11. Percentages of Young Adults’ Savings Account Ownership by Income (Ages 18 to 22) 83

and Race (17 to 23)

Endnotes 112

References 114


Appendices A-I can be viewed at http://save4ed.com/appendices.




by Emily Rauscher and William Elliott


American society reflects considerable class immobility, much of which is due to the wide gap in

college completion rates between advantaged and disadvantaged groups of students. In the

introduction we discuss the factors that cause unequal college completion rates, introduce assets as

an explanation stratification scholars often ignore, and then outline the remainder of this report.

Most Americans take pride in what they perceive as the equality of opportunity offered in the United

States. Unfortunately, the facts do not support this widespread belief. Intergenerational mobility in the

United States is lower than in most other developed countries (Ermisch, Jänttii, & Smeeding, 2012;

Hertz et al., 2007; Jäntti et al., 2006). For example, based on intergenerational data from 10 developed

countries covering children from birth through adulthood, a recent study finds a stronger association

between parental education and children’s outcomes—including economic, educational, cognitive,

physical, and socioemotional measures—in the United States than in any other country studied

(Ermisch et al., 2012). Similarly, a study comparing the extent to which individuals in the United

States, UK, and the Nordic countries stay in the socioeconomic status in which they were born finds the

strongest “earnings transmission” in the United States, with the strongest intergenerational links at the

top and bottom of the earnings distribution ( Jäntti et al., 2006).

At least since Blau and Duncan (1967), we have known that education plays a central role in the

relationship between socioeconomic background and individual life chances. While credentials increase

opportunities, attaining those credentials is strongly dependent on socioeconomic standing. In Blau

and Duncan’s (1967) path model of status attainment, for example, the status of a son’s first and current

occupation is more strongly associated with the son’s own education than with his father’s occupation.

At the same time, however, the father’s occupation and education account for 26% of the variation in the

son’s education. The remaining 74% of the variance remains unexplained in the Blau and Duncan model,

but it could be related to other social background measures, such as family income, mother’s education,

neighborhood, and school quality, to name just a few.

Thus, although education plays an equalizing role, it also reproduces inequality by transmitting advantage

from one generation to the next. For education to be a fulcrum of intergenerational mobility, then, U.S.

policy must address the yawning gap in educational attainment among different economic classes.

This introduction examines the factors that lead to disparities in college completion. College completion

is a particularly important milestone because evidence suggests that a college degree, more than other

aspects of the educational experience, carries the greatest potential for improved economic standing

(Belman & Heywood, 1991; Bills, 2003). Unfortunately, many Americans never reach this milestone,


even if they enroll in college. According to the National Center for Education Statistics (2011), only 58%

of those who entered a four-year institution in 2004 completed a degree within six years.

Completion rates at two-year colleges were even lower for the 2004 cohort—around 28%. In today’s

economy, a college degree is a prerequisite for most so-called good jobs that provide a living wage. A

recent report by Carnevale, Smith et al. (2011) finds that only 36% of high school graduates without any

college education earn at least $35,000 a year (which the authors consider to be a living-wage cutoff and

nearly 150% of the poverty level for a family of four). In contrast, 46% of those with some college and

69% of college degree holders earn above the living-wage cutoff. In addition, the number of living-wage

jobs accessible to those without any college education is declining (Carnevale, Smith et al., 2011), which

suggests that postsecondary education will become even more important for access to living-wage jobs

in the future. Research also suggests that bachelor’s degree attainment begins to equalize opportunity by

parental class and income (Hout, 1984, 1988; Torche, 2011). However, while poor students who make it

through college today may enjoy more equitable opportunities than they would otherwise, the unequal

chances of completing a degree – which is itself heavily influenced by parental resources (Bowen, Chingos,

& McPherson, 2009) – make college graduation an important factor in the intergenerational transmission

of inequality (e.g., Carnevale & Strohl, 2010; Haskins, 2008).

Below we review evidence of the relationship between individuals’ characteristics and college completion.

First, we outline some of the typical explanations for intergenerational transmission of college completion,

including income, parental education, cultural and social capital, quality of academic preparation,

health, and behavior. The second section reviews evidence of an alternative mode of intergenerational

transmission: assets, the main focus of this report. Then we describe what follows in the remaining

chapters of this report.

Typical Explanations for Unequal College Completion

Over the years researchers have discovered many factors that predict college completion. In the following

section we review a number of them in greater detail.

Parental Income

Young adults with parents earning at or below the poverty level will have difficulty financing even one

year of college, let alone the four or five that may be necessary to complete an undergraduate degree.

Watching their parents struggle to earn enough money for even the basic necessities of food and housing

may make low-income students averse to student loans, further constraining educational choices and,

potentially, leading students to choose less expensive institutions, which may also have fewer supports and

lower graduation rates (e.g., Carnevale & Strohl, 2010; Cunningham & Santiago, 2008). Furthermore,

families with low incomes are more susceptible to financial shocks, including job loss, health emergencies,

or medical bills (Acs, Loprest, & Nichols, 2009; McKernan, Ratcliffe, & Vinopal, 2009; Pew Charitable

Trusts 2013). Such financial emergencies could drive a student out of college and into the workplace to

help support the family (e.g., Elliott, 2013a), or students from low-income families may have to balance a

heavy workload with a heavy course load (Walpole 2003). Student employment can help pay for college

but may detract from both academic and social engagement at school, making it easier to drop out. In

fact, Hamilton (2013) finds that funding college from a student’s work income may reduce the likelihood

of graduation.


In contrast, students from higher-income families often enjoy uninterrupted support throughout their

college career. While in college, higher-income students may not need to work, allowing more time for

study and extracurricular involvement, which strengthens ties to the school and peers and discourages

students from dropping out (Walpole 2003). Furthermore, if students from higher-income backgrounds

have more options in deciding where to attend, they are likely to choose a more selective, better-quality

school with higher retention rates (Carnevale & Strohl, 2010; Davies & Guppy 1997). Students with

higher-income parents also tend to have access to better-funded secondary schools, which encourage

higher academic achievement and better-quality teachers (Card & Krueger, 1996; Condron & Roscigno

2003; Johnson, 2006), thus enabling better college preparation.

Research supports the importance of parental income, finding that family income is significantly

related to college completion, even when controlling for other factors, such as family assets or liabilities

(Kim & Sherraden, 2011; Nam & Huang, 2009). Parental financial contributions to college, related to

family income, correlate with lower student grade point averages, but increase the likelihood of college

completion (Hamilton, 2013). Hamilton (2013) suggests that students receiving parental financial

contributions appeared to lower their performance but not to a level where they would have to leave

college. She suggests children reduce effort and get lower grades because parental investments are

most often not tied to performance; in return, children do not feel the economic cost of performance.

However, given that many of the positive economic effects of postsecondary education accrue with

college graduation, these advantaged students may not pay a long-term price for their decreased personal

investment in academic achievement.

Other research qualifies the importance of income. Among Hispanic/Latino immigrant children, for

example, income may not significantly predict college completion (Song & Elliott, 2011). While income

is significantly related to degree completion among White children, Zhan and Sherraden (2011a) do

not find a similar relationship among Black or Hispanic/Latino children. These null effects suggest that

there may be interventions capable of influencing low-income students’ educational trajectories, short of

equalizing their families’ incomes.

Raising further doubts about the role of income, Elliott (2013a) finds that income shocks—a 25% or

greater decrease in income—are positively related to college completion. This finding echoes recent

evidence that income is negatively related to college completion among all (Elliott, 2013b), Black

(Friedline, Elliott, & Nam, 2013), and low- to moderate-income children (Elliott, Song, & Nam, 2013a),

when accounting for family assets. Potential explanations for this counterintuitive evidence include

low-income students’ propensity to enroll in two-year degree programs, and higher-income parents

with more information about the financial aid process purposely limiting their income to increase aid

eligibility. These findings suggest a complex relationship among income, assets, parental education, and

college completion rates.

Parental Education

There is evidence that parental education plays a role in completing college once a student has been

accepted, suggesting that, even more than parents’ income, parental ability to help students navigate

the complex choices that accompany the pursuit of higher education may be a particularly important

influence on students’ success. Comparing first-generation college students, whose parents have no


college education, to traditional students offers the starkest contrast. Studying students at public flagship

universities, Bowen et al. (2009) find that even after adjusting for differences in high school grade point

average, SAT or ACT scores, state residency status, race or ethnicity, gender, family income, and the

university a student attended, children of parents with a bachelor’s degree were still 6% more likely to

complete a degree within six years than were children of parents with no college education. According

to Greenwald (2012), nearly 90% of first-generation students fail to graduate within six years. Indeed,

the unlikelihood of these students’ college graduation may be an especially powerful factor limiting

intergenerational economic mobility among American children.

Interpersonal explanations may partially account for the different experiences by parental education. For

example, first-generation students tend to value interdependence, in contrast to the academic norm of

independence (Stephens, Fryberg, Markus, Johnson, & Covarrubias, 2012). First-generation students

may also have trouble distinguishing between debate and argument or constructive and personal

criticism, which can be problematic in the classroom (Greenwald, 2012).

Regardless of the explanation, there is conflicting evidence regarding whether parental education

has a causal impact on college completion rates. Other factors, such as parental income, occupational

standing, academic preparation before college enrollment, or intelligence, could drive any apparent

relationship between parental education and children’s college completion. Recent research exploits

natural experiments to isolate the effect of parental education. For example, Attewell and Lavin (2007)

take advantage of the City University of New York (CUNY) period of open admission to assess the

effect of mother’s college attendance or graduation on children’s outcomes. While they do not investigate

children’s college completion, they do find that mothers’ college education increased the likelihood that

children entered college. Oreopoulos, Page, and Stevens (2006) take advantage of changes to compulsory

education requirements to create a natural experiment, finding that children of parents with more

education are less likely to repeat a grade in school. While the mechanisms are not fully understood, it

seems likely that these parental education effects continue throughout the college process and, indeed,


Family Structure

Family structure also has implications for college persistence. For example, Mare and Tzeng (1989)

find that children with younger fathers are less likely to complete high school and, if they enter college,

are less likely to persist in college as well. In fact, they find that father’s age has a stronger effect on the

likelihood of college graduation once enrolled than on any other educational transition. Because men

from lower-class backgrounds are more likely to have children early, and because young fathers are less

likely to have high incomes or educational attainment, parental age at birth is another way inequality is

transmitted between generations, through multiple mechanisms.

Family size has similar effects on educational chances. While this research generally does not investigate

college completion, it does find that having more siblings reduces individual educational attainment

(Steelman, Powell, Werum, & Carter 2002). Furthermore, sibling density (age spacing of siblings) is also

related to educational achievement and attainment (Conley, 2001; Powell & Steelman, 1990; Steelman

et al., 2002). Children with more siblings, spaced more closely together, receive a smaller share of their

parents’ limited resources throughout their childhood. At the college level, Steelman et al. (2002) find


that the presence of more siblings dilutes parental financial contributions to college costs, which reduces

educational attainment.

Cultural and Social Capital

One way that external inequalities could influence college completion is through cultural and social

capital, the social cues and cultural norms that higher-status children acquire as part of their socialization

into an advantaged class. Cultural and social capital are often but not always tied to parental education.

For example, students who attend elite boarding schools could learn cultural behaviors and gain social

connections regardless of parental education (Cookson & Persell, 1985; Khan, 2011). While poor

students who attend on scholarship are unlikely to gain equal status—or feel they fully belong in such an

elite world—they do gain valuable cultural and social capital.

The importance of cultural capital stems from the idea that schools reward students for academic

knowledge but also for cultural knowledge and behavior “appropriate” for that cultural context. Students

come to school with different levels of familiarity with the art, music, literature, and even language. Those

who acquire valuable forms of cultural knowledge and behaviors from their parents often experience

higher achievement at school (Bourdieu, 1977; DiMaggio, 1982).

Parents are strong transmitters of cultural capital, and parental practices are major contributors to the

cultural inequalities that students carry with them to school (Lareau, 2002, 2003). Middle-class students,

whose parents constantly question and negotiate with them, have a greater level of comfort with teachers

and other authority figures at school. These same students participate in many extracurricular activities

that further improve school interactions and engagement and groom the students for the college

application process. A decade after her initial study, Lareau (2011) found that middle-class parents

continue to help their children navigate the college experience, giving advice about courses and majors,

for example, that lower-class parents would not be able to provide even if their children made it to

college. In Lareau’s study, children of educated parents gained this valuable knowledge. However, if the

key is knowledge about navigating the college process, cultural capital could be important beyond any

effects of parental education itself.

While few have investigated the role of cultural capital at the postsecondary level, there is evidence that

it plays a role in college achievement and persistence (Spenner, Buchmann, & Landerman, 2005; Wells,

2008). For example, research has examined the extent to which cultural capital influences persistence

for first-generation college students, who have much lower completion rates than other students. Firstgeneration

students have more difficulty grasping the implicit expectations and priorities of professors

(Collier & Morgan, 2008). Given this difficulty of having to learn academic content while also learning

the role of college student, first-generation students’ academic performance tends to suffer. Both

academic and social integration are important to college success, so these challenges can reduce the

likelihood that first-generation students will graduate (Collier & Morgan, 2008; Tinto, 1975, 1987).

Social capital researchers focus on explanations for student retention rooted in social engagement in

campus life. Today, universities generally have an office of student life that encourages social activities,

partly with student retention in mind. Engagement through extracurricular activities, for example,

can improve students’ attachment to college and increase their chances of graduating or even earning


a graduate degree (Tinto, 1987; Walpole, 2003). Participation in such activities is unequal by social

background (Walpole, 2003). If a student must work to finance his or her college education or help

support a family, the student is less able to participate in these social activities. Finally, upper-class

students have a stronger sense of belonging at an institution, on average, than do than lower-class

students (Ostrove & Long, 2007). For example, students who are more familiar with elite culture may

feel more comfortable on a college campus (Ostrove & Long, 2007), understand their professors better,

and have an easier time interacting with faculty and students. Not only does a sense of belonging have

direct implications for college completion, but social class also influences college outcomes through this

aspect of social capital (Ostrove & Long, 2007). In this way, social capital or belonging plays a role in the

intergenerational transmission of inequality.

Beyond social engagement, however, the type of peers with whom students interact also affects outcomes.

Taking advantage of random first-year roommate assignments, Sacerdote (2001) finds that peers’

academic ability and grade point average influence individual grade point average. Because students with

lower academic success or who are less academically engaged are more likely to leave college (Tinto,

1987; Wells, 2008), this has implications for college retention rates. Eckles and Stradley (2012) find that

peers have a direct effect on attrition as well. Students with a greater proportion of college leavers in their

social network are also more likely to leave. The friendships a student forms at college, therefore, can have

important implications for college completion and could be unequal if students befriend others with

similarly disadvantaged social backgrounds.

Mental and Physical Health

Several studies (Behrman & Rosenzweig, 2004; Black, Devereux, & Salvanes, 2007; Conley, Strully, &

Bennett, 2003; Oreopoulos, Stabile, Roos, & Walld, 2008; Royer, 2009; see Eide & Showalter, 2011 for

a review) using twins to estimate the effect of birth weight on educational attainment, find that higher

birth weight relates to increases in educational attainment. Others use differences in the timing of

health shocks while an individual was in utero to estimate the effects of prenatal health on educational

attainment. All find that prenatal exposure to health shocks or environmental toxins reduced educational

attainment later in life (Almond, 2006; Almond, Edlund, & Palme, 2009; Almond & Mazumder, 2005).

The bulk of this research studies effects on educational achievement (grade point average or test scores)

or years of educational attainment. Nilsson (2008) explicitly examines effects on college completion,

finding that children conceived by young mothers after Sweden restricted children’s access to alcohol

were more likely to graduate from higher education. This effect, however, only applies to men (sons).

Other research finds that height, which proxies for prenatal and early childhood health (Case & Paxson,

2010a), is associated with additional years of educational attainment and higher test scores, even within

families (i.e., including sibling fixed effects) (Case & Paxson, 2010b).

Studying postnatal health effects, Nilsson (2009) exploits exogenous differences in lead exposure and

finds that this toxin lowers a variety of attainment measures, including the likelihood of high school

graduation. This effect varies by socioeconomic status, as well. This environmental hazard affects fewer

higher-status children, suggesting that higher-class backgrounds can protect children from potentially

negative health effects. In terms of mental health, there is evidence that depression, attention deficit

symptoms, delinquency, and substance use decrease educational attainment and test scores (Fletcher &

Lehrer, 2009; Fletcher & Wolfe, 2008; McLeod, Uemura, & Rohrman, 2012).


While little research has examined health effects on college completion, the robust evidence that health

improves a variety of other educational measures suggests that effects on college completion are likely.

Mental and physical health is unequally distributed by socioeconomic status (Wilkinson, 1997; Adler,

Boyce, Chesney, Folkman, & Syme, 1993), and class advantage can protect individuals from poor

health or environmental stressors (Nilsson, 2009). Thus, health inequalities transmit advantage between

generations because upper-class children face fewer health challenges and are protected from those they

do experience.

Behavior, Intelligence, and Academic Preparation

Variations of human capital theory offer another explanation for differences in college completion.

Whether due to intelligence, academic preparation, or behavior (e.g., study time, study techniques, hard

work, ability to focus, or drug use), these explanations generally suggest that individuals leave college

because they do not meet academic standards. Sewell and Shah (1977), for example, suggest that class

sorting has already occurred by the time students get to college, and intelligence is more important

than socioeconomic status for college graduation. A classic functionalist view (Davis & Moore, 1945)

is that inequality is necessary to attract the best and brightest individuals to society’s most important

jobs. Schools, including colleges, play an important role in this process, sorting individuals into their

appropriate positions in society (e.g., Sorokin, 1959). If colleges sort students accurately by ability (i.e.

in a meritocratic way), then students must fail because they do not try hard enough or cannot do the

work. If that sorting process ends up reproducing inequality, so the story goes, it must be because parents

transmit their ability or behaviors to their children.

There are several problems with the meritocratic argument in the context of college completion. First,

specific traits (such as shyness) are by themselves unlikely to account for substantial variation in college

completion. While alcohol use, for example, may be partially inherited and related to college completion,

it is unlikely that alcohol alone can explain a substantial portion of the intergenerational transmission of

college completion. Further, we know that the degree of intergenerational transmission of educational

attainment varies across countries, while hereditary transmission of core traits could not be expected to

vary according to national boundaries (Hertz et al., 2007).

Related to this inheritance story, even if genes matter for educational attainment, gene-environment

interaction effects suggest that the effect of specific genes depends on social environment. For example,

Shanahan, Vaisey, Erickson, and Smolen (2008) find that the “risky” DRD2 genotype is associated with

lower likelihood of postsecondary school attendance for boys. However, they also find that this risk

is moderated by social capital; boys with high social capital show little association between genotype

and college attendance, while the relationship holds among those with low social capital. Similarly,

Guo, Roettger, and Cai (2008) indicate that regular family meals eliminate the delinquent tendencies

associated with the “risky” DRD2 genotype, while Pescosolido, Martin, Lang, and Olafsdottir (2008)

find that family support reduces the genetically influenced risk of alcohol dependence. While the jury is

still out on these gene-environment interaction effects (e.g., Conley & Rauscher 2013), there is reason to

believe that even if there are any genetic effects on college completion, they may be moderated by social

background, which is obviously more amenable to societal interventions than genetics.


In a similar vein, Loehlin (2005) finds that genes’ impact on personality occurs largely in ways that do

not transmit traits between generations. Based on this evidence, Loehlin concludes that genes do not

play much of a role in any intergenerational transmission of status through personality.

A second objection to the meritocratic argument is that intelligence is not a simple, constant, or inherent

attribute. As Gardner (1983, 1993) notes, there are multiple forms of intelligence. Universities tend to

value certain forms of intelligence, such as logical-mathematical and linguistic, more than others. In

addition, intelligence changes with time and experience (Flynn, 2007), and it does not equate to success.

Students receive unequal experiences and feedback in college depending on their background. For

instance, students’ opinions are likely to receive different responses depending on how closely they match

the views and cultural background of the faculty. Research on teacher perception suggests that grades are

strongly dependent on perception and social labeling (e.g., Rist, 1977). If the process works similarly at

the postsecondary level, professors could perceive privileged students more favorably than they do others.

Even beyond grades, college experiences can vary by social background. From a young age, middle-class

students have a greater sense of entitlement and level of comfort in academic settings, which facilitates

interaction with adults and authority figures (Lareau, 2002, 2003) and asking for help (Calarco, 2011).

Similarly, college students from advantaged backgrounds are more likely to meet with professors at

their homes and spend more time in student clubs (Walpole, 2003). Thus, while all college students are

smart and able enough to gain entrance into college, these different opportunities contribute to unequal

opportunity by social background.

Finally, meritocratic explanations for unequal college completion overlook the significant inequalities

in academic preparation. Multiple studies (Condron & Roscigno 2003; Kozol 1991) document the

drastic inequalities among schools—even those near each other—that provide widely different levels of

academic preparation. Low-income students’ parents are also less able to support academic achievement,

compounding the disadvantage with which these students struggle during school hours. Recent evidence

stresses the importance of academic preparation for student persistence. For example, Stinebrickner

and Stinebrickner (2013) find that what students learn about their academic performance (i.e., grades)

accounts for 45% of dropout that occurs in the first two years of college and 36% of dropout in the first

three years. Rather than learning that they need to study more, students who earn low grades tend to

interpret their poor performance as indicating that they are not academically prepared (Stinebrickner

& Stinebrickner, 2012). Given unequal academic preparation, early academic performance is likely to

generate unequal dropout rates by social background. Aside from preparation, low-income students are

more likely to work to finance their education, reducing available time for studying (Walpole, 2003).

Stratification scholars typically use income, education, and occupation as measures of socioeconomic

standing. Assets represent a distinct form of inequality with important implications for a variety of

outcomes (Conley, 1999). As Oliver and Shapiro (1995) note, wealth may be a more important measure

of inequality because of its relationship to power (power is a topic we discuss more in chapter 4) and,

particularly critical for this discussion of intergenerational inequality, its long-lasting effects. The role of

financial and nonfinancial assets in the intergenerational transmission of education has become more

visible in the last decade (e.g., since Conley, 1999, 2001). This report focuses on this new line of inquiry

to explain differences in children’s educational attainment.


Children’s Savings Accounts as a College Completion Strategy

Michael Sherraden (1991) proposed Child Development Accounts (CDAs), more often called children’s

savings accounts (CSAs) today, as a way to create an inclusive and accessible opportunity for lifelong

savings and asset building. Specifically, CSAs can serve as a policy vehicle to allocate both intellectual and

material resources to low- and moderate-income children. National interest in the potential for CSAs to

provide greater access to and completion of college for more children is evident in the rapidly changing

U.S. Department of Education (DOE) policy on children’s savings. In November 2010, the DOE,

Federal Deposit Insurance Corporation (FDIC), and National Credit Union Administration (NCUA)

established a new federal partnership to encourage schools, financial institutions, federal grantees,

and other stakeholders to work together to increase financial literacy, access to federally insured bank

accounts, and savings among students and families across the country. Then, in 2011 the DOE announced

an invitational priority for applicants in the GEAR UP grant competition that reflected Secretary of

Education Arne Duncan’s interest in financial literacy and savings as part of a plan for ensuring secondary

school completion and postsecondary education enrollment of GEAR UP students. Further, on May 31,

2012, the DOE announced a new college savings account research demonstration project that will be

implemented within the GEAR UP program. Moreover, a growing number of cities and states have also

begun to plan or have already adopted CSAs as a strategy for improving children’s futures.

Broadening the Case for CSAs

Chapter 1 discusses why a broader case for CSAs is needed. Within the assets and education field, the

primary rationale for including CSAs in a 21st-century financial aid strategy is their positive effects

on college access and completion. However, research suggests that there might be a broader case for

including CSAs. This case not only includes CSAs’ impact on accessing college but also their effects on

children’s preparedness for college and their postcollege financial outcomes. We suggest in the rest of

this report that, as policymakers and educators consider offering CSAs more broadly, they consider the

full range of arguments for asset-based approaches to financial aid. Particularly in the context of limited

public resources with which to pursue education-related goals, any financial aid approach with the

potential to bring improved outcomes at the individual and societal level, before, during, and following

college graduation, deserves our serious consideration.

Early Childhood Effects

Chapters 2 and 3 of this report discuss the potential of CSAs for early childhood effects. While student

loans are meant to address credit constraints around the time of college entry, evidence suggests that

CSAs might also act as an early childhood intervention. This distinction is important; student borrowing

only helps to finance college at the point of enrollment for those who have qualified to enroll in college.

However, some education researchers argue that financial resources have their strongest effect on

children’s educational outcomes early on in the child’s life, not at the point of college entry (Cameron

& Heckman, 1998, 2001; Cameron & Taber, 2004; Carneiro & Heckman, 2002). These researchers find

that when academic ability is taken into account, income effects on high school completion, college

enrollment, and college completion decrease significantly (Cameron & Heckman, 1998, 2001). Therefore,

they suggest that the long-term effects of financial resources on family background factors explain the

relationship between financial resources and whether a child enrolls in and completes college. That


is, the ability of financial resources to affect a child’s preparedness for college really matters, not their

ability to help them pay for college at the time of high school graduation. If this were the case, it would

seem that student loans could play only a small role in improving college access, while policies that help

children build college assets (i.e., assets of any type held by them or their family and intended to help pay

for college) early in life could affect their academic preparation and, therefore, the likelihood that they

will succeed in higher education. Indeed, these are effects seen in other areas of intervention to address

inequity; investments made earlier in a child’s life often yield greater dividends than those offered later.

College Access and Completion Effects

Chapter 4 discusses the potential of CSAs to improve children’s access to college. Assets likely have

both short- and long-term effects. For example, Huang, Guo, Kim, and Sherraden (2010) conduct a

simultaneous test of the two theories that include assets: (a) short-term borrowing constraints and

(b) long-term family background. They find that early liquid assets (i.e., easily fungible assets) have a

significant relationship to children’s long-term effects. That is, early liquid assets (ones the household has

when the child is between ages 2 to 10) work with children’s academic ability to influence whether they

attend college. The effect is stronger for low-income children than it is for high-income children. Liquid

asset findings are similar to those for income in this study. However, unlike in the case of income, late

liquid assets (between ages 14 and 19) also seem to be important for short-term effects (i.e., paying for


Research also examines whether college assets increase or reduce the likelihood that students report

paying for college with student or family contributions (see Elliott & Nam, 2013a). Elliott and Nam

(2013a) find that different types of college assets affect how students pay for college in different ways.

For example, planning to mortgage a home to pay for college and telling a student to put aside earnings

for college in 10th grade are positive predictors of student contributions in all three samples. It might

be that planning to mortgage a home and telling a student to put aside earnings signal to students that

parents do not have enough money put aside to pay for college, and students will have to contribute if

they want to go to college. This might be interpreted positively, at least among students who apply for

financial aid and who attend college. 1 These students might interpret these types of assets as meaning

that, even though their parents cannot afford to pay for college, their parents see it as a worthwhile

investment and are trying to figure out how to make college a reality. While these assets might be

interpreted as positive and encourage students to work toward college and contribute financially,

they do not provide actual resources for paying for college. Thus they are positively related to student


Chapter 4 also discusses the role CSAs may play in improving college completion rates. There is little

evidence to suggest that, in particular, high student loan debt is positively related to college persistence or

completion (see Heller, 2008). This is critical because college graduation rates are even more inequitable

than college enrollment rates. About 49% of White male students who graduated from high school in

2004 enrolled in a four-year college by 2006, compared to 43% of Black male students—a 6% gap (Ross

et al., 2012). In comparison, about 69% of White male students who started at a four-year college full

time in 2004 completed a bachelor’s degree by June 2009, compared to 48% of Black male students—a

21% gap (Ross et al., 2012). Students who complete college do better economically than students who

do not; indeed, much of the value of a college education may be accrued with graduation, not just


attendance. For example, median lifetime earnings in 2009 for a person with a bachelor’s are $2,266,000;

associate degree, $1,727,000; some college, $1,547,00; and high school diploma are $1,304,000

(Carnevale, Rose, & Cheah, 2011).

Children’s Savings and Postcollege Effects

Chapter 5 discusses the link between children’s savings and their financial outcomes beyond college.

Even beyond educational outcomes, there are considerable corollary benefits to preferring an assetbased,

rather than debt-heavy, approach to financing higher education. Emerging research by Friedline

and colleagues has provided some evidence that accruing savings as a child is associated with increased

likelihood of asset accumulation into adulthood. As a result, children may leave college better equipped

to pursue important financial goals as young adults. For example, Friedline and Elliott (2013) find that

children between ages 15 to 19 who have savings are more likely to have a savings account, credit card,

stocks, bonds, vehicle, and a home at age 22 to 25 than if they did not have savings of their own between

ages 15 to 19.

These findings are especially meaningful for a generation that might not be better off than its parents’.

Urban Institute research finds adults in their mid-30s have accumulated no more wealth than their

counterparts 25 years ago (Steuerle, McKernan, Ratcliffe, & Zhang, 2013). Since restoring the American

dream requires not only equitable access to equalizing educational opportunities but also ladders of

opportunity throughout society, the potential for an asset-based approach to college financing to help

chart dramatically different financial profiles postcollege—of savers, rather than debtors—demands that

we examine these alternatives.

Policy Discussion

There are various options for putting CSAs into practice in national policy structures, including retooling

state 529 college savings plans, developing lifelong savings vehicles through the tax code, and/or

reimagining the Pell Grant program as an early commitment approach. Chapter 6 explores the history

and potential future of CSAs in the United States and around the world and offers principles to guide

consideration of CSA policy development.

Key Points

Contrary to the ideal of higher education as an equalizing force in U.S. society, there is considerable

evidence that disparities in college attainment may be powerful mechanisms through which

economic mobility in the United States is constrained. A wide range of characteristics—family

income, parental education, cultural capital, and the like—all shape children’s educational

experiences and predict college entry and success. Beyond these more common explanations,

however, assets also play an important role in college attainment.


Chapter 1


by William Elliott


The price of higher education, traditionally a passport to financial security in the United States,

has increased dramatically in recent decades. This change is largely due to a shift in higher

education financing—from a collectively funded public good to reliance on individual and family

contributions—and has implications for education’s ability to be an equalizing force in the United

States economy.

Asset-based financial aid models offer an alternative to the current debt-dependent form of financial

aid for low-income students. While high student loan debt may hinder college completion and

even deter enrollment among some low-income students and students of color, promoting asset

development can ultimately reduce the need for loans and, by itself, improve educational outcomes.

Limiting the amount of individual borrowing may improve outcomes on several measures critical

to long-term U.S. economic success and to the realization of greater equity: student and family

capacity to finance college, student academic preparedness for college, enrollment and graduation

among disadvantaged students, educational attainment for students while in college, and financial

independence for new graduates. Furthermore, asset-based policies such as children’s savings

accounts (CSAs)—which, unlike loans, build resources for college before enrollment—have been

found to shape students’ expectations about their own educational futures, illustrating the greater

transformative power of assets, as contrasted with financial aid available at enrollment. For all of

these reasons, policies that combine smaller student loans with asset-based approaches—including

both new savings structures and retooling existing savings and financial aid offerings so they build

on asset accumulation principles and better meet the needs of low-income students—could be

a financial aid model that builds college readiness more effectively among low-income students,

improves their access to college, and increases their chances of success in higher education and of

postgraduation financial security.


Higher Education and the American Dream

In its simplest form, the American dream is the belief that success is a result of effort and hard work,

coupled with ability. This idea is embedded in the psyche of most Americans and shapes the way we

collectively view individuals’ successes or failures, as well as the social policies that undergird opportunities

or perpetuate disadvantage. The term American dream was popularized in James Truslow Adams’s 1931

book, The Epic of America. This dream of working hard to build a better life—a central driver in the history

of our nation—is associated with the constitutional right of all citizens to the “pursuit of happiness.”

However, especially in the aftermath of the Great Recession, some have begun to question whether the

American dream is actually attainable (Zogby, 2009). These doubts first took root with the increase in

economic inequality that has been taking place since the 1970s (Hochschild, 1995; Mishel, Berstein,

& Shierholz, 2009). Stagnant wages, rising college costs, and economic pressures intensified through

economic globalization have called into question the supposed axiom that subsequent generations of

Americans would be more prosperous than previous ones. In individual families and in the collective

sphere, conversations lament the perception that the American dream is elusive for many. Over time, this

may erode belief in the link among opportunity, effort, and success, changing how Americans think about

our economy and their future, including how students contemplate the value of an increasingly expensive

college education.

Especially since the beginning of the 20th century, few institutions have been more important in

sustaining the American dream than public schools, colleges, and universities (see, e.g., Hochschild &

Scovronick, 2003). As early as the 19th century, Horace Mann called education “the great equalizer of the

conditions of men” (1848, p. 59). Since then, a widespread belief has persisted that economic disparity can

be narrowed through effort in school and the pursuit of higher education. Through this lens, academic

failure and its subsequent effects on career mobility can be blamed for much of the hardship that

disadvantaged groups of Americans experience.

However, there is evidence that education might not benefit everyone equally. In fact, it might actually be

helping to maintain the status quo (e.g., Carnevale & Strohl, 2010; Hertz et al., 2007). For example, Hertz

et al. (2007) find a 0.46 correlation between parents’ education level and their children’s education level,

which suggests that education may channel children into the same social class as their parents. Similarly,

Haskins (2008) finds that 54% of adult children with parents in the top income quintile make it into the

top income quintile themselves. In comparison, 19% of adult children from the bottom income quintile

make it into the top income quintile.

On the other hand, using five longitudinal data sets, Torche (2011) finds that college degree holders

enjoy greater intergenerational mobility than those with less (or more) than a bachelor’s degree. Class,

occupational status, earnings, and household income outcomes are least associated with these parental

measures among adults who hold a bachelor’s degree. Thus, ensuring equal opportunity to achieve a

college degree is critically important, but, here, too, patterns of disadvantage and relative privilege are


To set the table for a balanced discussion of the present state of college access in the United States, we

need to reexamine the systems that facilitate or impede access to higher education, as well as the effects

of that education, once delivered. This includes exploring the effects of student self-efficacy (a student’s


elief about his or her ability to exercise influence over life events) and institutional efficacy (the extent

to which institutions hinder or support self-efficacy) on college-going. We also must examine 1) whether

student loans, which were supposed to make college more accessible, can actually help to level the playing

field; and 2) whether asset-based strategies, such as children’s savings accounts (CSAs), can extend beyond

children’s ability to access college to improve success in college and after.

Self-Efficacy, Institutional Efficacy, and College Preparedness

Self-efficacy and the effects of expectations on individual behavior are based on decades of research (e.g.,

Bandura, 1997). However, in Chapter 2 we propose that self-efficacy is only one important dimension

of perceived efficacy. The kind of self-efficacy an individual develops (internalizing or externalizing) may

differ based on environmental influences. To explain how this happens, we introduce the concept of

institutional efficacy. Institutional efficacy is defined as children’s beliefs about the effectiveness of using

institutional resources to produce designated levels of performance that influence events that affect their

lives. We go on to suggest that institutional efficacy is also critically important—children need consistent

and supportive relationships with the formal institutions they encounter to be able to perform schoolrelated

activities successfully. Many formal institutions low-income children encounter are not supportive,

however, and they quickly learn that they must expend a great deal of effort to achieve minimal outcomes

(and later learn that they face significantly more barriers than middle- and upper-income children do).

A key question in evaluating financial aid models is the extent to which they represent “institutional

facilitation”—efforts by institutions to express high expectations and consistent support.

The Effects of Student Loans on Human Capital Development

Research on education and mobility has largely ignored the role of outstanding student debt on

education’s ability to function as an equalizer. Many Americans see taking out a student loan as an

investment that supports long-term achievement (Cunningham & Santiago, 2008). Student loans are

seen, then, as a sort of down payment on the American dream, a necessary price to pay for access to

human capital that opens doors to promising opportunities. From this perspective, all that matters is that

the student who goes to medical school, for example, is better off (has increased lifetime earnings) than

if he or she did not go to medical school. But this borrowing may have real costs for students’ balance

sheets that weaken the ability of education to act as an equalizer. Additionally, the system’s default to

borrowing as the vehicle to finance higher education may, itself, discourage some groups of potential

students from enrolling in college at all, thus blocking educational progress rather than facilitating it. On

a macroeconomic level, rising levels of student debt—now more, in the aggregate, than credit card debt—

affect growth prospects for the economy as a whole.

Put another way, outstanding student debt actually may magnify the effects of inequality already in

the system, inequality defined as two people who invest similar levels of effort and ability in college yet

achieve dissimilar outcomes upon graduating. In speaking about the American dream, Thomas Shapiro

(2004) said, “The genius of the American Dream is the promise that those who work equally hard will

reap roughly equal rewards” (p. 87). If student debt puts one person at a disadvantage compared to another

who does not have student debt, and if students are comparatively more or less likely to have to rely on

significant student debt based on the relative disadvantage or advantage they bring to the college financing

decision, it fails to act as an equalizer.


The Shift Toward Individual Responsibility Has Led to Rising Student Debt

The student-based financial aid model in America is based on a belief that education, and especially

higher education, is primarily a commodity “purchased” by individual students, who then reap its rewards

(Baum 1996; Heller & Rogers 2006). Changes in federal and state policies in recent years have shifted

higher education toward the commodity model. Increased tuition costs and reductions in grant-based

aid have meant students and their families are taking on more of the burden of paying for college.

Dependence on student loans as a way to pay for college has risen, at least in part, because of the shift in

financial aid policy over the last several decades toward greater individual responsibility.

If higher education is indeed primarily a commodity, students should bear much of the cost of education.

And they do, now more than ever. Fry (2012) finds that 40% of all households headed by an individual

younger than age 35 has outstanding student debt. The proportion of undergraduate students who

took out federal loans increased from 23% in 2001‒2002 to 35% in 2011‒2012 (College Board, 2012).

According to Fry (2012), the average outstanding student loan debt in 2007 was $23,349, and it rose to

$26,683 by 2010. Further, total borrowing for college hit $113.4 billion for the 2011‒2012 school year,

up 24% from five years earlier (College Board, 2012). As a result, households are faced with ever-growing

debt. In the 2011‒2012 school year, about 37% ($70.8 billion) of all undergraduate financial aid received

came from federal loans (College Board, 2012). The next highest source of aid was federal Pell Grants at

19% and institutional grants at 18%.

College Savings Accounts:

More Degrees, Less Debt

Figure 1. Rising Student Debt Is Associated With Lower Graduation Rates

Student Debt: Up 31%

in Five Years

2007 2012

$18,957 $27,253

$548 Billion

America’s Total Student Debt

$966 Billion

2007 2012



Higher Student Debt = Lower Graduation Rates

$20K in Debt

Debt above $10,000 has

a negative relationship

with college completion

for all income groups at

public institutions,

especially the bottom

75% of the income





Completion rate








*Confidence intervals show that there is a fair amount of uncertainty about the specific graduation probability at a given level.

Source: Dwyer, R. E., McCloud, L., & Hodson, R. (2012). Debt and graduation from American universities. Social Forces, 90(4), 1133-1155.


College Cost Burdens Are Not Equal

The financial aid policy trend toward personal responsibility raises the question of whether this policy

burdens some students and their families disproportionately. Elliott and Friedline (2013) take up this

question in “‘You Pay Your Share, We’ll Pay Our Share”: The College Cost Burden and the Role of

Race, Income, and College Assets.” This study provides some evidence that parents may communicate

a meta-message to their children: “You pay your share, we’ll pay our share.” However, some parents are

better equipped financially to pay their share than are other parents. This raises two related questions

for evaluating financial aid policy. First, is available financial aid sufficient to provide equitable access to

higher education for those who apply and enroll? Second, is available financial aid sufficient to support

student self-efficacy among younger students? The climate of rapid increases in college costs may be

affecting both of these questions, and these costs are projected to increase into the near future, especially

given projected state budget cuts.

In the case of low-income (annual family income of $0 to $20,000) students, Elliott and Friedline

(2013) find little evidence that low-income students are being asked to bear more of the burden of

paying for college compared to other income groups based on their college cost burden. However, there

are large disparities in family contributions compared to other income groups, particularly high-income

($100,001 or higher) students, and the authors are unable to ascertain whether the number of grants and

scholarships available to low-income students is sufficient to make up for reduced family contributions.

That is, while the basic pattern of how students pay for college is creating equality of opportunity, financial

aid may not be sufficient to actually provide equality (e.g. Advisory Committee on Student Financial

Access [ACSFA], 2002, 2006, 2010).

This suggests that, while the college cost burdens for those who actually make it to enrollment may

not be unfavorable for low-income students compared with higher-income students, the shift toward

individual student responsibility may prevent some low-income students from enrolling at all. The shift

in the financial aid system away from societal responsibility and toward individual student and family

responsibility may make college appear out of reach to lower-income students, particularly those who

may be reluctant to take on large debt burdens. Over time, these enrollment patterns could exacerbate

the educational attainment gaps between wealthier and poorer students, since reduced college enrollment

from a given community will also sever some of the information and relation ties that can facilitate access

to college. That would mean, of course, that current financial aid patterns could be eroding education’s

power to equalize opportunities and outcomes, in ways that may not be apparent when looking only at

those who actually become college students. For example, Carnevale and Strohl (2010) find

that every year almost 600,000 students graduate from the top half of their high school class

and do not get a two- or a four-year degree within eight years of their graduation. More than

400,000 of these students come from families who make less than $85,000 a year. More than

200,000 come from families who make less than $50,000 a year, and more than 80,000 come

from families with incomes below $30,000. (p. 93)

Moderate-income ($20,001 to $50,000) and middle-income ($50,001 to $100,000) groups appear to

have the most regressive college cost burden of any income group, especially when considering fouryear

colleges. This is because these income groups have the highest probability of reporting paying for


college with student contributions (predominantly made up of loans) compared to societal contributions

(Elliott & Friedline, 2013). To be more specific, 81% of moderate-income students who attend a fouryear

college report paying for college with student contributions, and 80% also report paying with

societal contributions. In the case of middle-income students, the burden is even higher (78% student

contributions; 69% societal contributions). With respect to four-year college attendance, low-income (73%

student contributions; 87% societal contributions) and high-income (62% student contributions; 67%

societal contributions) students are more likely to report paying for attendance at a four-year college with

societal contributions than they are with student contributions.

While both moderate- and middle-income students might be discouraged from attending four-year

colleges because of the college cost burden, high-income students are encouraged to do so. This provides

evidence that lower-income students, with the exception of the lowest income bracket—whose college

enrollment rates are the lowest—are being forced to bear more of the responsibility for paying for college

than are high-income students. As in the case of race, this problem is only exacerbated when family

contributions are considered. Thus, one could argue that the financial aid system least favors moderateincome

students because the probability that they receive family contributions is far less than that of

middle-income students. In line with this, Sallie Mae (2011) reports that among high-income students,

43% of the cost of college is paid through family income and savings, with an additional 8% being paid

through family loans. That means that over half of the cost of college for high-income students is paid for

through family contributions. In contrast, among low-income students only about 25% of college costs are

paid for by family contributions (Sallie Mae, 2011). 2

Student Loans Do Not Increase College Completion Rates

We have discussed in this chapter some ways the student financial aid market affects college financing of

students from different income brackets. Such questions are important for evaluating the extent to which

the current financial aid system facilitates or mitigates education’s equalizing powers. Perhaps even more

important, however, are questions about whether the way students pay for college affects their educational

experiences, particularly given that the accumulation of knowledge leading to a college degree is surmised

to be the most critical piece of education for purposes of equalization.

In this respect, research suggests that, after a certain level, student loans might not produce the desired

effect of increased enrollment and graduation rates. After conducting an extensive review of student

loans, Heller (2008) concludes that there is very little evidence to suggest that loans improve children’s

college outcomes. Further, Cofer and Somers (2001) suggest that larger numbers of student loans are

counterproductive and fail to meet the goal of making college accessible to more students, while smaller

loan amounts might have positive effects. Building on Cofer and Somers (2001), evidence suggests

that the right dollar amount of loans for undergraduates might be about $10,000. For example, Dwyer,

McCloud, and Hodson (2012) find that debt below $10,000 has a positive relationship with college

completion, while debt above $10,000 has a negative relationship with college completion for the bottom

75% of the income distribution (the vast majority) in their study (also see Zhan, 2012, 2013). Similarly,

Gicheva (2011) finds that an additional $10,000 in student debt reduces the long-term likelihood of

marriage, perhaps by affecting students’ economic well-being postgraduation. Minicozzi (2005) finds

evidence that once student debt increases from $5,000 to about $10,000, wage growth four years after

graduating from college declines by 5%.


Figure 2. Savings for College Are Associated With Higher Graduation Rates

Early Savings = College Success for Low-Income Students

High School Students

with No College Savings

High School Students

with College Savings*

45% Ever Enroll

72% Ever Enroll

in College

in College

7% Graduate

33% Graduate

Even College Savings of Less than $500 Boost Chances of College Entry

and Success for Low- and Moderate-Income Students

3X More

Likely to


4X More

Likely to


* Savings of less than $500

The reason for the diminishing positive benefits of student loans above $10,000 might be at least in part

because of many students’ aversion to taking on large amounts of debt to pay for college. For example,

prior research suggests that because of low-income students’ aversion to borrowing, student loans may be

a more effective strategy for middle- and high-income students (Campaigne & Hossler, 1998; Paulsen

& St. John, 2002). Similar findings exist with regard to race. Perna (2000) finds that student loans have

a negative effect on enrollment at a four-year college for Black students, and she attributes this in part to

an aversion to borrowing. The reason for the diminishing positive benefits of student loans postcollege or

upon leaving college might have to do with credit constraints that are associated with having high student

debt, a topic we discuss later in this chapter.

In sum, research suggests that after a certain level, student loans might not produce increased enrollment

and graduation rates. If this is true, simply continuing to increase the dollar amount of loans available to

students might actually decrease equity.

Student Loan Debt Affects Future Financial Health

Education’s role as an equalizer extends beyond the opportunity for individuals to attend and graduate

from college to their ability to achieve financial self-sufficiency and move into or remain in the middle

class. Unfortunately, student loan debt often is a serious impediment to this final goal.


The U.S. Department of Education (2012a) finds that the national two-year student loan default rate was

9.1% in 2010; over a three-year span it was 13.4%. It is not surprising that students from higher-income

households are less likely to default (Woo, 2002). Their families might be able to provide a safety net for

them when personal income fluctuates, something that is not available to lower-income students. For

default, as for educational outcomes, higher amounts of debt seem to be worse than smaller amounts.

The higher the amount of debt students graduate with, the more likely they are to default on their loans

(Schwartz & Finnie, 2002). These findings are particularly significant given the increases in average debt

levels, in correspondence with rising college costs, as described above.

However, even when students do not default, delinquency can damage the overall health of households’

balance sheets. Student loans are delinquent when a borrower becomes 60 to 120 days late, and delinquent

accounts are reported on students’ credit scores. According to Cunningham and Kienzl (2011), 26%

of borrowers who entered repayment in 2005 became delinquent on their loans at some point but did

not default. About 21% of these borrowers did not pay back their loans to get out of delinquency, but

instead, they used deferment (temporary suspension of loan payments) and/or forbearance (temporary

postponement or reduction of payments for a period because of financial difficulty) to alleviate the

problem temporarily (Cunningham & Kienzl, 2011). In total, they find that nearly 41% of borrowers

suffered the negative consequences of delinquency or default.

Delinquency and default also have negative consequences for society as a whole. For example, the U.S.

Department of Education paid $1.4 billion in 2011 to collection agencies to track down students who

are delinquent or in default (Martin, 2012). High percentages of students either becoming delinquent

or defaulting have led some in the popular media to speculate whether student loans represent the next

financial crisis for America (e.g., Cohn, 2012). Certainly we have seen in recent economic history the

macroeconomic effects of many millions of Americans highly leveraged in a credit market.

The effects extend not only to the students but also to their families as well, because parents often cosign

on student loans. Cosigners are equally liable for paying back student loans, and defaulted loans show up

on their credit reports as they do for students. According to the Federal Reserve Bank of New York, about

2.2 million Americans age 60 or older owed $43 billion in federal and private student loans in 2012, up

$15 billion from 2007 (Greene, 2012). Among student loans held by Americans age 60 or older, 9.5%

were at least 90 days delinquent. This is up about 7.4% from 2007. Even without defaulting, student loans

still show up on the credit reports of cosigners, which can make it hard for the cosigner to qualify for a

loan to buy a home, for example. While parents may be helping their children to pay off large outstanding

student loan balances, this ongoing debt could impair their own ability to save for their retirement, just as

younger families may find it difficult to save for their children’s future college educations or to prepare for

their own retirements while they are still paying off their outstanding student debt.

Even when individuals are not delinquent and do not default on their loans, having outstanding student

debt may still negatively affect the financial health of households (e.g., Gicheva, 2011; Minicozzi, 2005;

Mishory, O’Sullivan, & Invincibles, 2012). For instance, Rothstein and Rouse (2011) posit that credit

constraints after college can represent a source of substantial debt effects on postcollege outcomes. Since

recent college graduates’ annual earnings are usually much lower than they will be during prime earning

years, most young adults with student loan debt are forced to rely on credit as a key mechanism for

purchasing wealth-building items like a home (Keister, 2000; Oliver & Shapiro, 1995). In America, homes


are the main source of wealth accumulation for the middle class (Mishel, Bivens, Gould, & Shierholz,

2013). Mishel et al. (2013) find that home equity makes up 64.5% of all U.S. wealth. However, credit

constraints force young adults with outstanding student loans to delay purchasing a home. Mishory et al.

(2012) find that the average single student debtor would have to pay close to half of his or her monthly

income toward student loans and mortgage payments. As a result, the debtor would not qualify for an

FHA loan or many private loans (Mishory et al., 2012). More specifically, Stone, Van Horn, and Zukin

(2012) find that 40% of students graduating from a four-year college with outstanding student loan debt

delay a major purchase such as a home or car. Students with outstanding student loans not only delay

significant financial outlays, they also may delay marriage (Gicheva, 2011) and have reduced earnings

(Minicozzi, 2005). Therefore, we posit that outstanding student debt may make access to credit even

less likely postcollege and may affect households’ financial well-being and family formation, even when

student loans are in good standing.

Basic descriptive data show how outstanding student debt—whether in delinquency, default, or neither—

weakens the ability of education to play the role of the great equalizer in America. Elliott and Nam

(2013b) find that median net worth in 2009 for households without outstanding student loan debt is

nearly three times higher than it is for households with outstanding student loans ($117,250 versus

$42,800, respectively). Though slightly smaller, this pattern holds true for 2007 net worth data as well

($149,022.50 versus $68,427.17). These descriptive data tell a simple story of households with student

loans accumulating far less wealth postcollege than households without student loans, even when they

have both attained the same level of higher education. This pattern remains after controlling for other

demographic factors: outstanding student loans are associated with having lower net worth. For example,

they find that a household with a median net worth in 2007 ($128,828) and with outstanding student

loans is associated with a loss of about 54% in net worth in 2009, compared to a household with similar

levels of net worth but no student debt.

The effects of student loans on students’ long-term financial health appear to be more severe for lowerincome

households than for higher-income households. This is a story similar to the one we saw with

change in net worth. While households at the 15th percentile of net worth in 2007 with outstanding

student debt lost less net worth ($5,017.26) than did similar households at the 50th percentile ($69,976)

from 2007 to 2009, the loss for the 15th percentile represents 285% of their net worth in 2009, whereas

it only represents 54% for the 50th percentile. In addition, Elliott and Nam find that higher amounts of

debt result in greater net worth losses. They also find that living in a household with a four-year college

graduate with outstanding student debt is associated with a net worth loss of about 63% ($185,995.90

less), compared to living in a household with a four-year college graduate with no outstanding debt.

The findings reviewed in this section suggest that student loans reduce the ability of education to serve as

an equalizer in American society. Restoring this vision, then, may require rethinking how students gain

access to the higher education that is supposed to be the gateway.

CSAs Might Make Loans More Effective

Evidence suggests that loans combined with grants or scholarships might be a more effective strategy than

loans by themselves. For example, Hu and St. John (2001) examine different types of financial aid and

find that, when combined with grants, loans have a more positive effect on persistence than do loans only


across different racial groups. This led Heller (2008) to conclude, “If grant aid were proportionally higher,

then loans might provide more of a positive impact on college participation” (p. 49).

However, due to fiscal constraints and the personal responsibility framing of higher education benefits

discussed above, there might be little political support in the near future to increase the number of

scholarships and grants available to students. Given this, there may be need for an innovation in

financial aid that combines loans and CSAs. CSAs are a policy vehicle for allocating intellectual and

material resources to low- and moderate-income children. Unlike basic savings accounts, CSAs leverage

investments by individuals, families, and, sometimes, third parties (e.g., initial deposits, incentives,

matches). CSAs appear to align well with the ideal of personal responsibility because they require students

and their families to help pay for college by saving. However, unlike the current approach, which often

forces students and families to take on high-dollar debt to fulfill their college cost obligations, CSAs

promise some significant benefits to children before, during, and after college.

Asset-Based Strategies and the Promise of Higher Education

Educational achievement is worth striving for and is the best-known lever for equality and prosperity.

However, given the growing gap in educational attainment by family income, the current education

system—and higher education, in particular—does not provide poor children with the same opportunity

for economic mobility that it does for higher-income children (Haskins, 2008). Confronting this gap

has never been more important than today. As American college graduates encounter an increasingly

globalized economy, U.S. higher education policies need to go beyond focusing on how to increase college

enrollment and graduation. We must turn to enhancing opportunities for students to increase their selfefficacy

and expectations related to educational achievement and for their families to prepare in advance

financially for college. We also must consider whether our policies place college graduates in a strong

position to succeed financially as young adults as well.

Asset-building strategies may be a way to make progress on all of these goals and maximize the benefit

of going to college. For example, as college debt skyrockets, adults receive less of a financial return on

their educational investment. Having assets may help to reduce the debt burden on students and their

families, and thus increase the value of a college education. In addition, if family savings correlate with

better student engagement at an early age, saving may allow them to take full advantage of the primary

and secondary education they receive and position them for greater college achievement. Given the

relationship between engagement and academic attainment, the prospect of affecting children’s orientation

toward their education for relatively small initial investments deserves greater attention. Also, if having

savings as a child is associated with higher rates of saving throughout adulthood, children may be more

likely as adults to maximize the financial benefit of having a college degree. See Table 1 for a comparison

of a student loan financial aid strategy to an asset accumulation strategy.


Table 1. Snapshot Comparing a Debt-Dependent Financial Aid Strategy to an Asset-Dependent Strategy

Precollege Educational


College Access









Not applicable; college loans

are designed to be a college

access intervention.

Extensive reviews

suggest findings

can be considered

mixed at best

(e.g., Heller,


There appears

to be a negative


between loans

and college

completion above

$10,000 (Dwyer

et al., 2012; Zhan,


Negative effects,


with delays in

marriage, delays

in purchasing

cars and homes,

lower credit

scores, less net



Mixed success with respect

to improving reading

outcomes; a more consistent

and positive relationship is

found between assets and

children’s math scores. Assets

also appear to have positive

associations with a number of

other precollege educational

outcomes such as GPA and

high school graduation (see

Appendix B).

Researchers find a

consistent positive


between assets

and college access

(see Appendix C).

Researchers find a

consistent positive


between assets and

college completion

(see Appendix D).


research finds

a consistent




children’s savings

and young

adult financial

outcomes (see

Appendix H).

If one financial aid model (our current, loan-based model) helps children pay for college only when they

reach college age, while another (a hybrid loan and asset-based model) has the potential for multiple

positive effects beyond paying for college, the better investment becomes obvious. We have a collective

interest in the educational attainment of American children. Innovative ways to help children and

their families accumulate savings to pay for college, while building on the positive effects of fostering

individual ownership and students’ stake in higher education, deserve our attention.


Key Points

Shifting the cost burden results in disparate impact.

• The cost burden in higher education is shifting from society to individual students

and families, with disproportionate effects on low-income and first-generation

college students and students of color.

• High student-loan debt has negative effects on students’ college enrollment,

persistence, and graduation and on economic security after graduation. There is

also some evidence that debt affects student enrollment decisions, as cost burden

influences institutional choice.

Not all financial aid is created equal.

• Asset-based policies such as children’s saving accounts (CSAs) may be able to

deliver superior educational outcomes for students and align with the recent policy

emphasis on personal responsibility for college costs.

• Asset-based supplements to student loans can improve those loans’ effectiveness in

better educational outcomes and prevent some of the most negative effects of

student-loan debt. Reducing the amount of student borrowing is critical, as evidence

suggests that the most significant negative effects of student loan debt begin to

occur once total loans reach approximately $10,000.

A combination of assets and loans may result in better outcomes.

• The greatest disparities in postsecondary educational attainment by race and income

are in college completion, not in enrollment.

• Assets to pay for college significantly improve college completion rates.

• Asset-based financial aid strategies may help to supplement loan-based policies,

reduce student debt, and increase college completion rates for disadvantaged

student populations.


Chapter 2


by William Elliott and Margaret Sherrard Sherraden


Normative expectations (norms) provide children with initial information about how the world ought

to work, before they have accumulated experiences themselves. Once children enter school, they begin

to test normative expectations. Children usually begin with high self-efficacy (a positive view of one’s

ability to accomplish goals), but around fourth grade, children begin to make efficacy judgments

based, in part, on a new awareness that there are differences in access to institutional resources.

At this point, children begin making more mature judgments that include both self-efficacy and

institutional efficacy (the extent to which institutions facilitate achievement of their goals). This

limits the range of behaviors they perceive as available to them, and efficacy judgments become more

predictive of behavior. They repeat making judgments and performing a pattern of behaviors until

they feel they can accurately predict their ability to bring about future outcomes through a pattern of

behavior. At this point, they form and internalize cognitive expectations.

Once they have internalized cognitive expectations as part of their identity, children act on them

when they are important, align with their beliefs about their group’s identity, and provide a strategy

for overcoming difficulty. Because cognitive expectations only make up one aspect of identity, they

can only partially explain behavior. Identities likely consist of several domain-specific (in the case of

schools, academic and financial domains) cognitive expectations. When a particular identity is cued,

cognitive expectations associated with that identity are emphasized, and children have an automatic

psychological and, in turn, physiological response to the identity. While these responses are automatic,

acting on them is not. For cognitive expectations to be changed, a change in their environment must

interrupt the automatic response. By providing high institutional efficacy and predictable support

of a child’s self-efficacy, CSAs are one way to change the environment and, over time, cognitive

expectations about college-going.


Assets Affect How Children Think About College

In his book, Assets and the Poor: A New American

Welfare Policy, Michael Sherraden (1991) argues that

asset accumulation is the key to improving the well-being

of low-income families. From this perspective, well-being

is a long-term, dynamic process. Accordingly, financial

assets can be used to develop other types of assets, such as

human, cultural, or social capital. Sherraden (1991) also

believes that multiple economic and psychological effects

are associated with owning assets. Specifically, he posits

that assets improve household stability, increase personal

efficacy and political participation, create an orientation

toward the future, enable focus or specialization, and

provide a foundation for risk taking. The potential for

multiple effects has made assets a particularly alluring and

fast-growing policy strategy for improving the well-being

of low-income families.

In addition to helping children finance college, much of

the interest in creating asset-building policies for children

is based on assets’ potential to change how children think

and act. Since the majority of empirical research on assets

and education focuses on the psychological effects of

assets, we also emphasize them in this chapter. Theory and

research on the psychological effects of assets are in early

stages of development (Schreiner & Sherraden, 2007).

One promising area of theoretical and research inquiry is

the study of college expectations to explain the relationship

between assets and children’s educational outcomes (see

Elliott, Choi, Destin, & Kim, 2011; Elliott, Destin, &

Friedline, 2011). Reynolds and Pemberton (2001) define

college expectations as children’s perceptions of the

subjective probability that they will be able to attend and

graduate from college. Over time, some asset researchers

have moved toward a more psychologically grounded

perspective that focuses on how children see themselves

in a future state—in this case, a future in which they

attend college (Destin, 2013; Elliott, Choi, et al., 2011;

Oyserman, 2013).

Our discussion of how assets affect how children think

and act and develop a college-bound identity is grounded

in identity-based motivation (IBM) theory (Oyserman,

2007, 2009). We view the concept of self-efficacy through

Key Terms

Cognitive Expectation: An outcome

expectation that is gradually constructed

as part of the process of testing

normative expectations and evaluating

an accumulating set of facts or life

experiences (see Gould, 1999).

College-Bound Identity: An identity

rooted in an expectation of attending

college. Institutions provide contextual

clues that nurture or activate this identity.

Institutional Efficacy: An individual’s

beliefs about the effectiveness of using

institutional resources to produce

designated levels of performance that

exercise influence over events that affect

a person’s life.

Institutional Facilitation: The process

by which institutional efficacy promotes

healthy self-efficacy beliefs and the

development of positive future identities

(e.g., college-bound).

Internalization: The reconstruction of

modeled behaviors through the use of


Normative Expectations: Norms

given legitimacy by mainstream values

and associated with a set of socially

prescribed behaviors and expectations

shared by most people within a society

(Gould 1999; Luhmann & Albrow 1985;

Merton 1957).

Self-Efficacy: An individual’s beliefs

about the effectiveness of using individual

resources to produce designated levels of

performance that exercise influence over

events that affect their life (Bandura, 1997).


an IBM lens to develop a richer understanding of how assets can lead to high self-efficacy. We then

introduce a new dimension of efficacy, institutional efficacy, to understand the qualities of institutions

that support self-efficacy. Finally, the concept of institutional facilitation describes the process through

which high institutional efficacy increases self-efficacy.

Figure 3. Integration of Institutional Facilitation and Identity-Based Motivation Theories for Understanding

Asset Effects

Institutional Context (Normative Expectations + Role Expectations)

Institutional Facilitation Process

Identity-Based Motivation Process

Efficacy Judgment

















Interpretation of


Notes: While the whole integration process takes place in the context of institutions, the ovals in Figure 3

represent key points where institutional resources might make an important difference in determining outcomes.

This suggests that a key part of performance may be how institutions augment children’s effort and ability

through the allocation of resources. The double-arrowed dashed lines represent instances where a performance is

repeated several times before moving on to the next step. The dashed diagonal line with no arrows represents an

interruption that causes the child to question whether the pattern of behavior associated with the internalized

identity will result in the same outcome as in the past or cause the child to believe that patterns of behavior

that were not previously available to him or her are now available. The opposite may also be true: patterns

of behavior are no longer available because institutional characteristics have changed. Role expectations are

discussed in Chapter 4.

Institutional Facilitation Process

In this model (Figure 3) we suggest that normative expectations (norms) are formed in response to

experiences and provide children with initial information about how the world ought to work. They

provide children with the necessary knowledge and sense of predictability to begin to investigate and

influence their world. However, once children enter school, they begin to test normative expectations

more extensively. When children first enter school, their self-efficacy—their belief in their ability to

accomplish what they set out to do—is high. It is high in part because young children are unaware of

differences in access to institutional capabilities, so they view the range of behaviors they can perform

successfully as almost limitless. Around fourth grade, children begin to make efficacy judgments based on

a new awareness that there are differences in access to institutional capabilities (Bandura, 1997; Schunk

& Pajares, 2002). At this point, they begin making more mature judgments that include both self-


efficacy and institutional efficacy judgments. This limits the range of behaviors they perceive as available

to them, and efficacy judgments become more predictive of behavior (see e.g., Bandura, 1997; Schunk &

Pajares, 2002). They repeat making judgments and performing a pattern of behaviors until they feel they

can accurately predict their ability to bring about future outcomes through a pattern of behavior. At this

point, cognitive expectations are formed and internalized.

Identity-Based Motivation Process

Once cognitive expectations are internalized as part of an identity, children act on them when they are

important, feel congruent (align with their beliefs about their group identity), and provide a strategy

for overcoming difficulty (difficulty is interpreted as normal) (e.g., Oyserman & Destin, 2010). Because

cognitive expectations only make up one aspect of the identity, they may only partially explain behavior.

Identities likely consist of several domain-specific cognitive expectations (in the case of schools, e.g., they

may consist of both an academic and financial domain). When a particular identity is cued, cognitive

expectations associated with an identity are emphasized, and children have an automatic psychological

and, in turn, a physiological response to the identity. While these responses are automatic, acting on

them is not.

For cognitive expectations to be changed, the automatic response must be interrupted by a change in

children’s environments. This interruption allows children to question whether another way of viewing the

outcome is available to them (e.g., seeing college change from closed to open). This model, then, helps to

explain how and why asset accumulation can have significant effects on children’s identities and, therefore,

their educational outcomes, by illuminating the psychological changes that such savings can induce.

Identity-Based Motivation Theory: A Predictor of Outcomes

Asset researchers increasingly view the effects of assets on children’s educational expectations through

the lens of IBM theory. IBM theorists suggest that three principal components affect the relationship

between self-conceptions and motivation and give significant attention to how social and cultural

context drives the process. The three core principles of IBM include (a) identity salience, (b) congruence

with group identity, and (c) interpretation of difficulty (Oysterman, 2007; Oysterman, 2009; Oysterman,

Bybee, Terry, & Hart-Johnson, 2004;). Three principles of IBM discussed in this chapter may help

explain why a CSA strategy can activate college-bound identities.

Identity Salience

Salience is the idea that children are more likely to work toward a goal when images of their own future

are in the forefront of their mind. CSAs may promote salience in children with regard to college in two

basic ways: First, they signal to children that college is near and requires action now, and second, they

help children view college as relevant to their current context. The first is relatively easy, and current CSA

programs typically address this in a number of ways, beginning with CSA enrollment itself as a signal/

cue. CSA programs also may provide children with bank statements, remind them about the need to

deposit money in their accounts, and provide children with access to financial education classes that link

saving to their ability to pay for college. All of these activities signal to children that college is near and

requires action now.


The second way CSA programs can make college feel near is by removing barriers that interfere with a

child’s vision of college. Traditional CSAs are modeled on Individual Development Accounts (IDAs),

a structured account to help poor adults save and accumulate assets. However, IDAs typically do not

allow for short-term or intermediate purchases that could remove obstacles standing in the way of

long-term goals, such as financing retirement. Normally people are allowed to withdraw funds in IDAs

for purchases such as buying a home, starting a business, paying for college, or retirement (Sherraden,

1991), not for their emergency or survival needs. As a result, some individuals might never be able to

act on their future identity as a homeowner or retiree, because those distant identities are superseded by

current pressing needs. Anyone who has ever been without food, shelter, or other basic necessities for an

extended period understands how such deprivation can cloud vision or make the future appear far away

and, therefore, not in need of immediate action. This might not mean that they do not want to act, only

that they have limited resources and meeting basic needs is taking up most of those resources. Therefore,

it might be that, for CSAs to have the largest effect on how children think about college (as near or far

away), children need to be able to access some savings sooner for college to become more likely.

Structuring CSAs so that children can use savings to solve problems they encounter on their path to

higher education may strengthen children’s understanding of saving as a strategy with which to facilitate

progress toward college. This concept is supported by findings that indicate that liquid assets or assets

that are turned into cash more easily appear to be more closely associated with helping children prepare

for college (e.g., Elliott, Destin et al., 2011; Huang et al., 2010).

Group Congruence

In addition to salience, IBM theory suggests that, for an identity to be actionable, that identity must

also show congruence with the identity of a group with which a child identifies. Congruence with group

identity occurs when an image of the self feels tied to ideas about relevant social groups (e.g., friends,

classmates, family, and cultural groups). When this occurs, it reinforces the congruent personal identity.

For example, there is a general perception that Black children are poor test takers, and research suggests

that even some Black children believe this (Bourdieu, 1984; Steele, 1997). As a result, Black children

might aspire to have an identity as a good test taker but not act on it at test time because it does not

match up with their group identity as a poor test taker (Bourdieu, 1984; Steele, 1997). Similarly, children

and their families might be less likely to sign up to be in a CSA program if saving does not fit their

current notion of their group identity. When CSAs are not congruent with existing group identities, they

must be crafted to help build new, more positive group identities that will make children more likely to

act on the college-bound identity. A national CSA program might signal to children and their families

that as a country, “We save, we go to college,” fostering group congruence around a new, positive identity.

The message, “We save, we go to college,” implies group congruence, but it also implies that saving is an

important strategy for paying for college. As more low-income families participate in the program, CSAs

could be the basis for new identities as savers in other aspects of these families’ lives. This might be a

rationale for adopting opt-out programs to leverage the power of inertia to aggregate individual savings

behavior into new, powerful group identities as “savers.”


The Role of Institutional Faciliation in Academic Success

Figure 4. Role of Institutional Facilitation in Academic Success

High institutional efficacy=

Institutions supportive of

an individual’s goals


High institutional

and self efficacy

facilitates a






As children grow, they

have varied experiences

and opportunities.

Access to supportive


as Children’s Saving

Accounts—can lead them

down a promising path.

High School

High institutional

efficacy facilitates

high self-efficacy:

Belief in one’s

ability to achieve




Interpretation of Difficulty

Finally, IBM theorists highlight the importance of having a means for normalizing and overcoming

difficulty. From this perspective, for children to sustain effort and work toward a self-image (such as a

college-bound identity), they and their environment must provide ways to address inevitable obstacles

(such as paying for college). At its core, IBM posits that children’s perceptions of themselves as

individuals or as group members predict which goals, strategies, and interpretations of difficulty (hard

but doable; hard and not attainable) come to mind with regard to school (Oyserman, 2013).

Alignment with IBM Principles Is a Predictor of Outcomes

Research shows that IBM principles are important predictors of children’s school behaviors (Oyserman

& Destin, 2010). In the context of college expectations, IBM-based researchers focus on visions students

have of themselves in a future state (a possible self ) (Destin, 2013; Elliott, Choi et al., 2011; Elliott,

Destin et al., 2011; Oyserman, 2013). When using IBM to explain the relationship between assets and

expectations, college expectations serve as a proxy for what IBM researchers refer to as a college-bound

identity (Oyserman, 2013). According to IBM theory, institutions can activate a child’s identities. IBM

theory allows for the fact that contextual cues have an overwhelming influence on college-related goals

that children set and the strategies they activate to pursue college (a future goal). Institutions are one

of the main providers of external cues (see North, 2005). According to Sherraden and Barr (2005), a

formal institution within the applied social science context can be thought of as a type of intervention


to alter behaviors and outcomes of individuals. For example, the current debt-centric financial aid

system described in the introduction is a formal institution that, for many students, makes college seem

unattainable or too expensive. In contrast, a national school-based CSA program might be thought of as

a type of institution designed, in part, to activate and nurture children’s college-bound identities.

Self-Efficacy and Multiple Dimensions of Efficacy

In the institutional facilitation (IF) framework laid out in the remainder of this chapter, IBM provides a

general model of self, while self-efficacy (“I can do”) and institutional-efficacy (“what I can do with the

help of institutions”) beliefs explain how outcome expectations (i.e., what people expect to happen) are

formed and how they change. Further, self-efficacy beliefs and outcome expectations, such as children’s

or parents’ college expectations, influence the types of imagined future identities that children form.

We suggest that at different points, self-efficacy beliefs or outcome expectations are more predictive of

behavior than at other points. Understanding when these points occur might be important for predicting

behavior and for designing institutions that change behavior.

Self-efficacy theory was introduced first by Bandura in 1977 in his seminal article, “Self-Efficacy:

Toward a Unifying Theory of Behavior Change.” Bandura (1994) defines self-efficacy as “people’s beliefs

about their capabilities to produce designated levels of performance that exercise influence over events

that affect their lives” (p. 71). Building on Bandura’s (1994) definition of self-efficacy, we define it slightly

differently as people’s beliefs about the effectiveness of using their individual resources to produce

designated levels of performance that influence events that affect their lives. Including the phrase

“individual resources” is significant because it specifies the dimension of efficacy under investigation and

the information the social scientist is emphasizing.

A self-efficacy assessment sounds like this: “I can put forth the designated level of effort, and I have

the ability to perform the task; therefore, I can conclude with confidence that I will achieve a desired

outcome by investing my individual resources.” If this is true, then the social scientist can assume that

if the person fails, he or she will attribute that failure to a lack of effort and ability and is more likely

to seek strategies that increase either effort or ability, or both. The social scientist could also expect that

this individual is likely to display the characteristics of persistence, increased effort, and coping skills

(Bandura, 1977, 1986, 1997).

As a result of self-efficacy’s emphasis on individual resources, the individual is seen as having the

capability to change his or her life circumstances, sometimes referred to as “personal causality” (Franzblau

& Moore, 2001, p. 85; Scheier & Carver, 1987). Because of self-efficacy’s focus on the individual as the

only significant agent of change, other dimensions of efficacy, such as institutions, are minimized in

current perceived-efficacy literature.

However, the individual does not always achieve a sense of efficacy through direct control, nor can he or

she; this assumption is made often in theories of perceived control (Skinner, 1996). As Sen (1999) writes,

individuals typically do not have direct control:

In modern society, given the complex nature of social organization, it is often very

hard, if not impossible, to have a system that gives each person all the levers of


control over her own life. But the fact that others might exercise control does not

imply that there is no further issue regarding the freedom of the person; it does

make a difference how the controls are, in fact, exercised. (p. 65)

To integrate a policy like a CSA as part of the self, it must be accessible to the individual and have

sufficient power to create change, and the individual must know how to use the power generated by

the agent to achieve his or her desired outcomes. In the case of CSAs, this suggests that they must be

accessible to children, that the resources CSAs provide must be sufficient to create change, and that

children must know how to use the resources CSAs generate to help them pay for college. The idea that

CSAs must be accessible aligns with proposals to make accounts universally available to all children

(Boshara, 2003; Sherraden, 1991), and research that shows that including an auto enrollment mechanism

(with an opt-out feature) is important to assure that all children end up with an account (e.g., Nam, Kim,

Clancy, Zager, & Sherraden, 2013).

Part of the power of having a CSA might be what children think they will be able to save in the future

(Sherraden, 1990). In addition to expected savings, another potential source of power that CSAs provide

stems from children’s belief that saving is a way to pay for college (Elliott, Sherraden, Johnson, & Guo,

2010), or is a complement to debt-centric financial aid—CSAs are a bridge to affordability. Additionally,

having a CSA brings children into the formal financial services sector in a way that might make other

resources available. For example, a CSA might provide children with broader access to credit markets

they can also use to pay for college. Last, the idea that children must know how to use the power

generated by the agent suggests that financial education classes and college preparation assistance might

play an important role in determining the effectiveness of CSA programs for empowering children or

augmenting their use of personal resources (Sherraden, Johnson, Guo, & Elliott 2011; also see Elliott &

Kim, 2013).

This process by which external agents or policies become integrated into the self suggests that selfefficacy

is only one dimension of a broader concept of efficacy. The dimensions of efficacy are derived

from an individual’s perception of what constitutes a resource. For an individual to see a resource as

a source of power, he or she may have to perceive it as being legitimate, helpful, and responsive (e.g.,

Antonovsky, 1979). In other words, “when financial products are accessible, affordable, financially

attractive, easy to use, secure, and reliable, they are more likely to appeal to low-income households”

(Sherraden, 2010, p. 8). If a financial product lacks these characteristics, it is unlikely to function as a

resource in efficacy assessment for the individual. We now turn to a more robust discussion of the role

that institutions play with regard to efficacy.

Institutional Efficacy and Changing Cognitive Expectations

The American Dream is fueled by the idea that if people put forth enough effort and have sufficient

ability, they will be able to obtain desired outcomes through normative behaviors. This idea grew out

of the rich and plentiful land of America and the institutions that were established early in the nation’s

history. This combination supported the belief that anyone could access the resources needed to achieve

desired outcomes. 3 Deeply rooted in the fabric of American culture, the American dream is something

that research suggests Americans of all socioeconomic classes believe in (Hochschild, 1995; Rank, 2004;

Wilson, 1987). The idea that people who have supreme confidence in their own individual resources are


most likely to achieve success is central to maintaining the belief in the institutions of America. Thus,

self-efficacy reinforces our belief in the American dream and the values that underlie it, even while it

fails to remedy structural injustices that block some Americans’ access to that same American dream.

Institutions might be key to individuals’ self-efficacy because they allow people access to resources and

act as an extension of the way humans process information (North, 1990, 2005). When talking about the

role of institutions in the life of an individual, Neale (1987) states, “One may speak of individualism or

individual motives, but it is within the constraints and meanings given by institutions that the individual

feels and responds and plans” (1987, p. 1179). Building on self-efficacy theory, the focus is on how

institutional responses affect children’s perceptions of their own personal efficacy.

Institutional Efficacy: A Key Dimension of Efficacy

Although the idea that institutions are a dimension of efficacy has been around in one form or another

for a number of years, we propose that institutional efficacy, as a key dimension of efficacy, has not been

captured adequately. Theorists have postulated that income positively affects efficacy (Duncan & Liker,

1983), that assets positively affect efficacy (Sherraden, 1991), and that socioeconomic status positively

affects efficacy (Gecas, 1989). Institutional efficacy, however, takes into account systemic differences in

the ways institutions respond to different groups of people in society (see, e.g., Shapiro, Meschede, &

Osoro, 2013). We define institutional efficacy here as people’s beliefs about the effectiveness of using

institutional resources to produce designated levels of performance that influence events that affect their

lives. Institutional efficacy focuses on children’s perceptions of their relationship with the institutions

in society and their confidence in those institutions to augment their ability as it does others’. If the

institution is consistently unresponsive—does not provide them with the power they need over required

resources to perform a task successfully—the child might develop low institutional efficacy. These

experiences may be especially meaningful in the earlier years of life. So, the degree to which children

perceive that their CSA is an effective tool for paying for college may depend on the degree to which the

children perceive that they can use the CSA to augment their ability to save. This implies that things like

incentives and matches might be important mechanisms for building confidence in CSAs as an effective

tool for paying for college.

Institutional efficacy expands agent-means relations to include access to institutional resources. Agentmeans

are concerned with whether individuals believe they have access to particular means believed to

be necessary for performing a task (Skinner, 1996). Agent-means relations within self-efficacy theory

were originally limited to beliefs about whether particular means for achieving an outcome are available

within the resources of the self, narrowly defined as effort and ability (Bandura, 1977; Skinner, 1996;

Skinner, Chapman, & Baltes, 1988). However, research has shown that agent-means relations can be

enlarged to include perceptions about the degree to which an individual has access to other means such

as powerful others, luck, and societal resources (Skinner, 1996; Skinner et al., 1988; Skinner, Wellborn,

& Connell, 1990). This is also similar to how Nussbaum (2000) discusses capability. According to

Nussbaum (2000), the idea of capability takes into account a person’s internal capabilities that develop

“usually with much support from the material and social world” (p. 82).

Assessing a person’s level of institutional efficacy might be a way of determining an individual’s

perceptions about access to institutional resources. Unlike self-efficacy, wherein people reflect on the part


of a task they perceive as being the result of their own effort and ability, institutional efficacy judgments

take place when people reflect on the part of a task they believe requires access to institutional resources

in order to perform. 4 This poses particular challenges with regard to college access, as research shows that

low-income children are much less likely to know that financial aid is available (Institute for College

Access & Success, 2008). As a result, they are more likely to overestimate the importance of institutional

resources in interpreting their own efficacy. There is some evidence of this. For example, researchers find

that low-income parents are more likely to overestimate the cost of college (Grodsky & Jones, 2007;

Horn, Chen, & Chapman, 2003), and low-income children are much more likely to think that cost is a

barrier to attending college (ACSFA, 2010).

IBM experimental research may provide an example for how lack of institutional efficacy may curtail

engagement in school. For example, Destin and Oyserman (2010) propose that children with fewer

assets may lower their expectations for school success and plan to engage less in school if they feel that

the path to attain the desired self (i.e., college-bound self ) is closed. They tested this proposition by

experimentally manipulating children’s mind-set about college as either closed or open. They did this

by randomly assigning classrooms to a closed path (i.e., college is expensive and outside of my control)

or an open path (i.e., need-based financial aid can pay for college). The children in the closed path were

read a simple text that indicated that the average college tuition costs $31,160 to $126,792, while the

open-path group was read a text that did not discuss the cost of college but instead informed them about

need-based financial aid opportunities. They found that children assigned to the open-path condition

were significantly more likely to expect higher grades and planned to spend more time on homework

than were those assigned to the closed-path condition. This example clearly illustrates the link between

educational engagement and children’s perceptions about their ability to access external resources.

Low-income and minority children are more likely to develop low self-efficacy and to experience low

institutional efficacy. Researchers believe that, somewhere between grades one and four, children begin

to form more realistic perceptions of their self-efficacy (Eccles, Wigfield, Harold, & Blumenfeld, 1993;

Harter, 1992; Harter & Pike, 1984; Paris & Byrnes, 1989; Wigfield, et al., 1997). By grade four, children

also begin to distinguish between occupational aspirations and expectations (Gottfredson, 1981), state

preferences for jobs that reflect their own social class standing (Henderson, Hesketh, & Tuffin, 1988),

and understand status differences among occupations in a manner similar to adults (McGee & Stockard,


What happens during this period that causes children to make more realistic assessments about their

self-efficacy and their educational and labor market possibilities? We suggest that, between grades one

and four, children develop a more complex understanding of outcomes, one that includes not only selfefficacy

but also institutional efficacy. This occurs as they begin to understand that not everyone has the

same access to institutional resources. Over time these types of experiences may reduce the belief that

low-income children have in their families as an important informal institution for providing financial

resources. These doubts extend to formal institutions, as well, as they observe and experience how formal

institutions respond to different groups of people. For example, Shapiro et al. (2013) find that a $1.00

increase in income later translates to a $5.00 increase in wealth for Whites, but only $0.70 for Blacks.

Over time, disadvantaged children perceive the institutions that facilitate and perpetuate such disparities

as less supportive of their own development.


Given the unequal treatment low-income and minority children receive, there is a need for formal

institutions that are tailored to meet their needs. CSAs can be such an institution. They respond to lowincome

and minority children’s specific needs by providing them with initial deposits, matches, incentives,

and financial education. In contrast to a traditional bank account, earned interest is not the only way for

deposits to grow. For example, some CSAs offer a 1:1 match, which means children would receive one

dollar for each dollar deposited in their accounts. Others offer benchmark deposits that celebrate academic

and other milestones during childhood. Moreover, the financial education classes that are usually part of

CSA programs instruct children and their families on saving and how to use savings effectively.

We argue that CSA programs should begin for low-income children around the time of initial school

entry or, if possible, at birth. First, the earlier children start to save, the more likely they are to accumulate

significant savings. Second, there are points in a child’s life when a policy is more likely to reach most

children. At birth or during initial school registration are two points when CSA recruitment is more

likely. Third, having a CSA from birth might help children see that saving for college is normative.

Fourth, owning a savings account for college might help children to avoid forming low institutional

efficacy in the first place.

The Role of Outcome Expectations

When talking about the relation between controllability and outcomes, Bandura (1997) comments:

Where performance determines outcome, efficacy beliefs account for most of the

variance in expected outcomes. When differences in efficacy beliefs are controlled,

the outcomes expected for given performances make little or no independent

contribution to prediction of behavior. (p. 24)

This is important in the debate about whether outcome expectancies or efficacy beliefs are more

predictive of behavior (Eastman & Marzillier, 1984; Kazdin, 1978; Scheier & Carver, 1987). Selfefficacy

theory holds that efficacy beliefs are more predictive of behavior in equitable circumstances in

which performance is the deciding factor in outcomes. That is, “Rather, where efficacy beliefs foretell

the expected outcomes, the outcomes become a redundant predictor” (Bandura, 1997, p. 24). However,

when performance is not perceived as the deciding factor, outcome expectations are a more accurate

predictor of an individual’s behavior than are efficacy beliefs. Self-efficacy theory is based primarily on

the assumption that a “normal contingency” exists (Scheier & Carver 1987, p. 198), a level playing field

on which performance is the primary predictor of outcomes.

However, there are differences in how strong these beliefs are (Hochschild, 1995). Hochschild argues

that Black Americans, for example, “believe in the American dream—but only sort of ” (p. 174). What

disadvantaged groups learn to doubt, through experience, is that their performance is the primary

explanation for the outcomes they experience. Thus, outcome expectations are more likely to predict

behavior than are efficacy beliefs. This is due to the internal transaction costs (i.e., use of personal

resources) associated with making efficacy judgments. Once people have sufficient evidence that effort

and ability will result in a similar outcome within a particular domain such as school, they stop making

efficacy judgments and act based on what they expect the outcomes to be (Bandura, 1997) due to their

limited personal resources for making such judgments (Bargh & Chartrand, 1999).


Normative and Cognitive Expectations

We consider two types of outcomes expectations: normative and cognitive. Normative expectations are

norms legitimated by mainstream values and associated with a set of socially prescribed behaviors and

expectations most people within a society share (Gould, 1999; Luhmann & Albrow, 1985; Merton,

1957). College as a desired outcome is an example of a normative expectation. Researchers find that most

children expect to attend college (Elliott, 2009; Kao & Tienda, 1998; Mello, 2009; Wildhagen, 2009).

Normative outcomes are what people should be able to expect when they act on or fulfill a normative

expectation. Normative expectations are embedded in the institutions of a society.

According to Luhmann and Albrow (1985), normative expectations are counterfactually formed—

that is, they are based on possible future occurrences, not experience—and provide people with initial

beliefs about how the world works. Young children initially do not question normative expectations

because they do not yet have the ability to question them. Normative expectations provide children

with the necessary knowledge and sense of predictability (if I do X, I can expect Y to happen) to begin

to investigate, question, and influence their world. By acting on socially learned patterns of behavior,

children begin to test these normative expectations (Rosenbaum, Reynolds, & DeLuca, 2002).

At a very young age, the main criterion children have for behaving in a certain way is whether they believe

they have the ability to perform a task. If children can reach the cup, they can see no reason why they

should not grab the cup. This highly exaggerated sense of self-efficacy in very young children (Coster &

Jaffe, 1990; Dweck, 1989; Flink, Boggiano, Main, Barrett, & Katz, 1992) is important for development

because it encourages them to try things they would not try otherwise. It is not until children begin to have

meaningful interactions with institutions outside of the family that they begin to realize that they are a

part of a larger society and they require access to institutional capabilities to perform some tasks successfully.

The second type of outcome expectation is cognitive expectations, which emerge in response to a person’s

experiences in achieving goals (Gould, 1999; Luhmann & Albrow, 1985; Merton, 1957). Cognitive

expectations are gradually constructed as part of the process of testing normative expectations and

evaluating an accumulating set of facts, or life experiences. Cognitive expectations do not typically match

disadvantaged individuals’ aspirations. Aspirations are values that indicate the desire for behaving in ways

that align with norms (Gans, 1968). Disadvantaged individuals often still hold normative expectations,

such as attending college, but are forced to adopt less desirable patterns of behavior and values

(“subcultures”) to support these behaviors because they lack access to institutional capabilities necessary

for achieving normative expectations (Gans, 1968; Gould, 1999; Rodman, 1963). For example, lowincome

and minority students are likely to experience a gap between what we call their college-bound

normative expectations and their actual educational attainment (Schneider & Stevenson, 1999; Trusty,

2000). 5 However, as Gans (1968) points out, one of the important distinctions that social scientists

must make when attempting to determine how strongly cognitive expectations are held is how people

feel about their behavior. Would they prefer other forms of behavior if they had real opportunities and

chances for success? What this suggests is that cognitive expectations are malleable.

The family, an informal institution, plays the main role in socializing children they enter school and, as

a result, children might be primed to view schools and maybe even banks or saving in a particular way.

An example of how disadvantaged children can sometimes be primed to view school in a negative light

is found in research conducted by Ogbu and Simons (1998). They found that Black school children’s


parents often send a double message to their children. On the one hand, they tell them to work hard in

school to be successful—a normative expectation. On the other hand, parents’ attitudes and comments

may also send a message of mistrust about the way school will treat their children and school’s ability

to contribute to future economic success—a reflection of a negative cognitive expectation resulting

from their own experiences. Even after cognitive expectations have been formed, however, normative

expectations remain embedded in people’s minds. They serve as a standard for how the world should work.

The Role of Institutions in the Formation of Cognitive Expectations

We argue that, like other children, low-income children aspire to mainstream values. To explore these

values, they regularly test normative expectations against their experiences. When experiences do not

align with their normative expectations, they may develop behavioral adaptations—behaviors that

they will continue to replicate as long as institutional capabilities do not change. When children are

confronted with a lack of institutional capabilities over an extended period, they learn to emphasize

the influence of institutional response (particularly if the events happen during the critical childhood

years). When disadvantaged children demonstrate atypical behaviors, they are responding logically to

their situations, not replicating “cultural” behaviors as suggested by Oscar Lewis (1966). As long as

disadvantaged children aspire to mainstream values, they will continue to test normative expectations.

Once children begin testing normative expectations and become aware of the differences in access

to institutional capabilities, they form beliefs about their own institutional efficacy (Erikson, 1963;

Gottfredson, 1981). At this point, some children develop doubts about their own ability to control events

in their lives. From these beliefs, children might make predictions about their ability to bring about

future outcomes through a pattern of behaviors—cognitive expectations. To the degree that children

believe that the reason normative outcomes fail to materialize is because of their inability to access

institutional capabilities, they form cognitive expectations that either resemble normative expectations

or diverge from them significantly. If they diverge, that is, if they believe that external factors are the

reason for their failure and not their own effort and ability, they form negative cognitive expectations and

college might appear far away.

After the child forms this more complex and negative understanding of the world, self-efficacy is no

longer sufficient for determining how to behave. The child begins to use outcome expectations for

this purpose (Scheier & Carver, 1987), more specifically, cognitive expectations. While self-efficacy

provides a useful tool for examining the resources of the self, institutional efficacy might shed light on

the internalized relationship to institutions and provide a link between an individual’s perception about

institutional access and his or her level of effort and ability. The child determines the range of viable

choices using self-efficacy and institutional efficacy.

Elementary schools provide young children with their first real experience with formal institutions as a

social force that shapes their social self. During the early school years children begin to see themselves as

part of a larger society, in which ability and effort are only part of the story, and that institutions either

enable or constrain their ability to achieve desired outcomes (Erikson, 1963). Erikson (1963) describes this

stage of development, “Thus the inner stage seems all set for ‘entrance into life,’ except that life must first

be school life, whether school is field or jungle or classroom. The child must forget past hopes and wishes,

while his exuberant imagination is tamed and harnessed to the laws of impersonal things …” (p. 258).


Children confront, in Erikson’s words (1963), “differential opportunity” when they enter school (p. 260).

Based on observations and interviews with a group of five-year-olds to ascertain their perspectives on

school, Sherman (1997) finds that children already know by age five that school is necessary for future

success in the labor market. This leads her to conclude, “Our social reality is created both as part of

individual understanding or interpretation of something and through an awareness and acceptance of

societal norms” (Sherman, 1997, p. 124). Children quickly learn to see the world through not only an

individual lens but also through a social lens emphasizing the importance of group congruence.

The pivotal role schools play in forming institutional efficacy might be part of a rationale for schoolbased

CSA programs, at least for programs that focus on improving children’s educational outcomes. If

children believe they lack access to the institutional capabilities necessary to perform well in school—and

eventually to attend college—they might be more likely to become discouraged and to disengage from

academic activities. School-based CSA programs might help children build institutional capabilities.

This may offer congruency to children, another reason to believe that schools support their investment of

effort and ability.

Identity as Internalized Cognitive Expectations

Once cognitive expectations are internalized and become part of a child’s identity, when identity is cued

by something in the environment, the child will likely have an automatic response to the cue. That is,

patterns of behavior captured in cognitive expectations that come to be associated with an identity might

be brought to the forefront of the mind subconsciously, like a reflex reaction. This automatic response

occurs because the child no longer needs to make an efficacy judgment in response to circumstance. The

cognitive expectation and the associated pattern of behavior (the pattern of behavior might actually be

not to act or to disengage) have been internalized as part of an identity.

The use of cognitive expectations can be a much more efficient way to determine courses of action and

are a necessary part of healthy functioning. Once cognitive expectations are internalized and integrated

into an identity, we suggest the child’s automatic response must be interrupted for change to occur. The

child must have a different experience with performing behaviors, or the child must be given a reason to

believe another identity is available that was not (or that she perceived was not) available before.

Similar to Vygotsky’s (1978) understanding of internalization, we suggest that internalization is the

reconstruction of modeled behaviors through the use of language as a tool. However, we suggest that

modeling cannot take place when a child does not have the resources to replicate what is being modeled.

People cannot model what they do not have the resources to perform. 6 This suggests that there is both an

internal and an external aspect to modeling. In the case of external resources, we suggest that, although

physical resources cannot be stored in the mind, people store the embedded thought processes that the

institutional context (i.e., rules and regulations) provides and use them as tools constructed through

the use of language. In an analysis of institutions and rational choice, North (2005) talks about this

embedded thought process: “much of what passes for rational choice is not so much individual cogitation

as the embeddedness of the thought process in the larger social and institutional context” (p. 24).

According to this theory, there is an important distinction between children who have internalized

cognitive expectations as part of their identity and those who have not. In the latter case, the child


esponds to a cue with an efficacy judgment about behavior that is subject to self-regulation. However, once

cognitive expectations are internalized, behavior is more likely to be subject to environmental control—a

stimulus-response process rather than a self-regulating process—unless something changes this dynamic.

Institutional Efficacy Can Promote Healthy Self-Efficacy Beliefs

There has long been a divide in the social sciences between approaches to understanding poverty that

emphasize individual-level explanations as opposed to those that emphasize the role of social structure

and institutions (Destin, 2013). Social scientists often view individual-level explanations as “victim

blaming,” though they could be viewed as emphasizing the importance of human agency. Nonetheless,

we need a conceptual framework that incorporates how individuals maximize human agency while

recognizing the meaning of institutional constraints on the ability of the poor, in particular, to achieve

successful outcomes. The idea of institutional efficacy provides a conceptual way to link human agency

with institutional capabilities. It highlights the importance of maximizing human agency among

disadvantaged individuals, while recognizing that to do so there must be authentic and trusted access to

institutional capabilities, both perceived and as real.

High institutional efficacy can reinforce a child’s self-efficacy. We refer to this process, or state, as

institutional facilitation. People who have access to institutional capabilities are more likely to have

elevated levels of institutional efficacy, which in turn results in heightened self-efficacy and trust in their

own abilities to solve problems. It is as though the individual feels uninhibited, restrained only by ability

and imagination. As Bandura (1994) points out, a person with high self-efficacy is more likely to become

a reformer, innovator, great writer, or famous actor.

We suggest that for humans to function optimally as agents of change, institutions must be predictable

in their interactions with other human beings and organizations—all qualities of high institutional

efficacy. Within the institutional facilitation framework, predictability is achieved when effort and

ability are consistently perceived as producing a particular outcome, desired or undesired. People who

are consistently forced to find alternative patterns of behavior to achieve results similar to others’ are

at a competitive disadvantage, so they spend unnecessary effort to reach where others start. These

extraordinary efforts do not produce social change (they do not create new development for society),

only individual change. As a result, the poor are forever frustrated because they recognize the effort they

must put forth just to survive. This effort is not socially recognized as valuable because it does not appear

to add to overall productivity. Furthermore, society suffers because it loses the productivity of a large

portion of its citizenry whose members are spending the bulk of their energy and time meeting basic

needs in a modern world.


Table 2. Practice and Policy Implications of Conceptualizing CSAs as Institutional Facilitators

Theoretical Proposition

CSAs provide children who expect

to attend college with a strategy for

paying for college, which in turn,

make it more likely that the collegebound

identity is acted upon.

Practice and Policy Implications

The degree to which children perceive that their CSA is an

effective tool for paying for college might depend on the degree to

which they perceive that they can use the CSA to augment their

ability to save. This implies that mechanisms such as incentives and

matches might be important for building confidence in CSAs as an

effective tool for paying for college.

For CSAs to act as an effective agent

for children, they must be accessible,

the resources they provide have to

be sufficient to create change, and

children have to know how to use the

resources generated by CSAs to help

them pay for college.

Assessing children’s level of

institutional efficacy is one way to

measure whether CSAs provide

children with certainty that they

have sufficient access to institutional

resources to attend college.

Between grades one and four,

children develop a more complex

understanding of outcomes to

include not only self-efficacy but also

institutional efficacy beliefs.

The idea that children must know how to use the power generated

by CSAs suggests that financial education classes might play an

important role in determining the effectiveness of CSA programs

for empowering children or augmenting their use of personal

resources. Matches and other incentives may be important tools

with which to ensure that the resources provided through CSAs are

adequate to help children actually pay for college.

This suggests that CSA effects might occur, at least in part,

through their influence on children’s perceived institutional efficacy.

Elliott and Kim (2013) suggest that training financial education

instructors in solution-focused brief therapy (SFBT) techniques

might be a way to cue children to make efficacy judgments as part

of CSA programs. SFBT might counter the negative financial

experiences of lower-income and minority children by offering

a different perspective to view the child that: (1) focuses on the

child’s strengths and previous success; (2) believes the child is

competent and capable of creating small successes that will lead to

bigger success; (3) values the child’s perspective and interpretation

of the problem; and (4) believes the child’s reality can be changed

through co-construction of a new reality.

Despite this general arc of developmental understanding of efficacy,

there are practical reasons for starting CSAs before fourth grade

that go beyond the development of institutional efficacy. First, the

earlier children start to save, the more time they or their families

have to accumulate savings. Second, there are points in children’s

lives when policy is more likely to reach them. At birth or during

school registration are two points when university recruitment

is more likely. Third, having a CSA from birth might encourage

children to perceive that saving for college is normative. And

fourth, owning a savings account for college might help children to

avoid forming low institutional efficacy in the first place.


Theoretical Proposition, Cont.

Cognitive expectations are gradually

constructed as part of the process of

testing normative expectations and

evaluating an accumulating set of

facts, or life experiences.

Low-income children’s constant

testing of normative expectations

reinforces behavioral adaptations—

behaviors continue to be replicated

because institutional capabilities have

not changed.

Patterns of behavior captured in

cognitive expectations and that come

to be associated with an identity

might be brought to the forefront of

the mind subconsciously, much like a

reflex reaction to a ball flying at your


When a child mentally designates

money in a savings account for

college, it indicates that the child

has been able to model the saving

behaviors of their parents or others

and use language to navigate the

process of paying for college through


Practice and Policy Implications, Cont.

If children believe they lack access to the institutional capabilities

necessary to perform well in school—and eventually to attend

college—they might be more likely to develop negative cognitive

expectations. Therefore, CSA programs might need to provide

access to funds before children reach college age to help ensure that

they do not develop negative cognitive expectations.

CSAs might be able to bring children into the formal financial

services sector in a way that might make other resources available

(Friedline & Elliott, 2013; Friedline & Song, 2013). For example, a

CSA might provide children with broader access to credit markets

that can also be used to pay for college. This may help break

this cycle and suggests that CSAs may have the power to shift

expectations that exceeds even their own ability to finance college.

If CSA programs begin to provide real opportunities in ways

that disadvantaged children recognize and trust, the programs are

more likely to interrupt this automatic response. Once interrupted,

children might be more likely to change their behaviors to meet

their aspirations/normative expectations, thus resulting in greater


We suggest that modeling may not take place when a child

does not have the resources to replicate what is being modeled,

or, similarly, when children do not have access to models who,

themselves, demonstrate these behaviors. Modeling implies

learning through duplicating/mimicking the behavior of another.

We suggest that children cannot model what they themselves do

not have the resources to perform. CSAs might provide a way

to bring resources to children, enabling them to model saving


Note: These are implications drawn from the theoretical model presented in this study. Therefore, research will

have to be conducted to determine whether the propositions prove to be true and, if they are true, whether they

produce the types of results outlined here.


Key Points

In addition to helping children finance college, much of the interest in creating asset-building

policies for children is based on their potential for changing how children think and act. In this

chapter we outlined an institutional facilitation (IF) model for how CSAs change how children

think and act. In this model, identity-based motivation (IBM) provides a general model of self,

while self-efficacy (“what I can do”) and institutional efficacy (“what I can do with the help of

institutions”) beliefs explain how outcome expectations (i.e., what people expect to happen) are

formed and how they change. Institutional facilitation is the process by which institutional efficacy

promotes healthy self-efficacy beliefs and the development of positive future identities.

Asset-building policies can change how children think and act.

• Institutional efficacy, the extent to which institutions support individuals as they

seek to achieve their goals, is a key component of the interaction between individual

self-efficacy and educational outcomes.

• Children’s savings accounts (CSAs) increase self-efficacy and can help children

make college feel attainable and relevant to their lives, helping them form a collegebound


Practice and policy implications.

• CSA programs should actively think about how they are providing cues to children

that college is near to support college-bound identities consistently.

• CSA programs should engage children and families as early as possible; natural

transition points such as birth or school entry are good targets.

• Financial education classes as part of CSA programs should emphasize the link

between saving and paying for college.

• Incentives and matches might be important mechanisms for building children’s and

parents’ confidence in CSAs as an effective tool for paying for college.

• How CSA programs need to respond to children might be different before and

after fourth grade.

• CSAs might be able to bring children into the formal financial services sector in a

way that makes other resources available and supports other saving behaviors.


Summary of Expectations Findings:

Seventeen studies examine the relationship between assets and parents’ and/or children’s expectations for

educational achievement. Key findings are summarized:

• Of the 17 studies examined in Appendix A, 11 studies test for mediation and the

remaining 6 test whether assets are associated with parent or child expectations.

• Math and Reading: Of the 17 studies examined in Appendix A, 5 include

educational expectations and math and/or reading.

o Parents’ educational expectations for math and/or reading

(3 studies out of 5):

• One study out of 3 finds net worth for math and reading is

mediated by mother’s college expectations.

o Children’s educational expectations and math and reading

(5 studies out of 5):

• Two studies out of 5 find children’s school savings and their

math scores are either mediated by or related to their college


• One study out of 5 finds the effects of net worth and school savings

on math and reading are not mediated by children’s college


• College Access: Of the 17 studies examined in Appendix A, 13 include

educational expectations for college access.

o Parents’ educational expectations and college access (7 out of 13 studies):

• Of 7 studies, 5 find assets are significantly associated with parents’

college expectations.

• Two studies out of the 7 find the relationship between mother’s

savings and college access is mediated by mother’s college


• Two studies out of 7 find net worth is significantly associated with

mother’s expectations.

• Of 7 studies, 1 found no asset variables significant for parents’

educational expectations and college access.

o Children’s educational expectations and college access

(6 out of 13 studies):

• Of 6 studies, 4 find that children’s savings is a significant predictor

of access to college.

• Three studies out of 6 find parents’ savings influence children’s

expectations for access to college.


• College Completion: Of the 17 studies examined in Appendix A, 11 include

educational expectations for college completion.

o Parents’ educational expectations and college completion

(6 out of 11 studies):

• Out of the 6 studies, 3 studies find that financial assets are

significantly related to parents’ expectations for their child to

complete college

• 2 studies out of 6 find that parent’s college expectations mediate

the relationship between net worth and college completion



Children’s educational expectations and college completion

(5 out of 11 studies):

• Two studies out of 5 find children’s school savings are related to

children’s college expectations for college completion.

• Of 5 studies, 2 find assets (e.g., financial assets and home

ownership) are significantly associated with children’s expectations

for college completion.

One study out of 5 finds net worth is not significantly related to college

expectations for college completion.


Chapter 3


by William Elliott

with Robert Kelchen


When thinking about the role CSAs may play in increasing college enrollment and completion

rates, researchers, practitioners, and policymakers tend to focus on their ability to help children pay

for college. That is too narrow a frame, though, given the disparities that drive whether children

even end up at the point of college enrollment. It was not until the last 10 years that researchers

began examining the effectiveness of CSAs in improving children’s educational outcomes and

changing the way they think about college. The emerging research linking asset development with

children’s academic achievement and college preparation suggests that CSAs may be a valuable

tool for addressing long-term barriers to closing the college attainment gap as well as inadequate

financial resources for college. Viewing CSAs through the lens of early commitment financial aid

strategies reveals how shaping children’s attitudes and expectations about college may influence

parents’ investments in their children’s education, potentially mitigating some of the effects of

poverty on college accessibility for disadvantaged children. This early commitment lens suggests

that CSA programs can consider certain features that may strengthen educational outcome effects,

such as those that would position children as agents with some control over their own academic and

financial futures, rather than as passive subjects of savings interventions.

Higher Education Inequities and Considerations for Financial

Aid Timing

Traditionally, researchers and policymakers have assumed that insufficient financial and academic

readiness among low-income children and their families explains inequality in children’s college

outcomes. This suggests that, to increase educational and economic equality in the United States,

interventions must address not only access to college at the point of enrollment but also strategies to

improve early preparation.

This chapter presents children’s savings accounts (CSAs) as a type of early commitment financial aid

strategy. We begin by discussing the current timing of financial aid. Currently, many children do not

receive information about the costs of college until their junior or senior year of high school and do not

learn of their actual financial aid package until after they have applied to or, in the case of institutional

aid, been accepted to college. CSAs are one strategy for encouraging earlier planning around college

financing. CSAs not only might help children pay for college but also help them prepare for college. This


aises questions about how CSAs could affect children’s early educational outcomes. Finally, we argue

that viewing children as agents, not just subjects, is critical for maximizing the effectiveness of CSAs as

an early commitment financial aid strategy.

Financial Aid Timing Affects College Outcomes

Research suggests that insufficient financial and academic preparation for college, partly attributable

to the common perception that college is unaffordable and out of reach for many American families,

are two reasons students from low-income families underenroll in college and often fail to complete

degrees (Ellwood & Kane, 2000; Goldrick-Rab, Harris, & Trostel, 2009; Heller, 2006). Most lowincome

students only receive specific and accurate information about college costs during their junior

or senior year of high school, when they are far along into the college choice process and long after they

would need to prepare academically for a college-preparatory path (Cabrera & La Nasa, 2000; Hossler

& Gallagher, 1987). As price-sensitive students and students with less “college knowledge” and larger

errors in their estimates of college costs, this delay is especially consequential for low-income students

(Bell, Rowan-Kenyon, & Perna, 2009; Bowen et al., 2009; Deming & Dynarski, 2010; Grodsky & Jones,

2007; Horn, Chen, & Chapman, 2003; Luna de la Rosa, 2006; Rowan-Kenyon, Bell, & Perna, 2008). 7

The negative consequences of these information gaps are exacerbated by the rising costs of college,

both because such price increases fuel the perception of college as an impossible dream and because the

financial impact of failing to prepare adequately for college expenses increases as the sticker price rises.

Failure to plan for college enrollment from an early point in K‒12 schooling is also detrimental because

the academic pathways to college, especially four-year colleges, are structured and sequential (e.g.,

Cabrera & La Nasa, 2001; Hallinan, 1996; Klasik, 2012). For example, the track to college-level math

begins in middle school, and fewer students from low-income families engage at that time (Long,

Conger, & Iatarola, 2012; Lucas & Berends, 2002; Rees, Argys, & Brewer, 1996). Thus, information

about college costs and necessary preparation must reach students as early as possible: effects on

postsecondary enrollment are detectable for interventions as late as 10th grade (Ford et al., 2012) but

are not statistically significant for information provided in 12th grade (Bettinger, Long, Oreopoulos, &

Sanbonmatsu, 2012).

The issue of the timing of financial aid has received relatively little attention in discussions about

reforming its design and delivery. Most efforts are directed at simplifying the process for applying for aid,

since Dynarski and Scott-Clayton (2008) and Dynarski, Scott-Clayton, and Wiederspan (2013) contend

that the complexity of the existing financial aid application process reduces the program’s efficiency

even as it promotes targeting. Still, early awareness is key to ensuring that more students engage in the

process, even after it is simplified (Dynarski & Scott-Clayton, 2013; Dynarski & Wiederspan, 2012). 8

Federal Financial Aid Timing Is Problematic

The federal financial aid system has received a lot of critique and scrutiny, in light of rising program costs

and concerns about efficiency and targeting. In the 2011‒2012 academic year, the federal government

provided nearly $175 billion in financial aid, of which nearly $50 billion was grant aid, $105 billion was

loans, and nearly $20 billion was tax credits (Baum & Payea, 2012). 9


To be eligible for federal financial aid in a given academic year, a student must complete the Free

Application for Federal Student Aid (FAFSA). The FAFSA consists of 105 questions and includes

items on student and parent investments and assets that are not part of a tax return, in addition to the

standard income information that is found on a W-2. 10 This information is used to calculate an Expected

Family Contribution (EFC) for the upcoming academic year, which is used to determine eligibility for

the Pell Grant and many other grant and loan programs. This process is repeated each year that a student

wishes to apply for financial aid. Thus, the FAFSA captures only a year-to-year measure of a family’s

short-term financial ability to pay for college, delivered on the brink of a college-enrollment decision and

with no time for additional financial preparation. Additionally, the uncertainty about available financial

aid in future years may hinder students’ ability to plan long term for the ongoing costs they will incur

throughout college.

Some have advocated simplifying the existing FAFSA process by prepopulating the form with tax

information from two years prior to college enrollment, rather than one year (e.g., ACSFA, 2005;

Dynarski & Scott-Clayton, 2008; Dynarski & Wiederspan, 2012). This “prior-prior year” approach

would make high school students aware of available federal financial aid for college during their junior

year, which may increase the likelihood they will enroll in college. However, it would not reach students

who do not complete the FAFSA and could only affect the university enrollment decisions of students

who are capable of being admitted—those who are academically prepared. If the goal is to induce the

most price-sensitive students to consider college and prepare for it so they can gain admission and

achieve college graduation, they need to know about the likelihood of and process for receiving financial

aid much earlier in their schooling.

Early Commitment Programs Show Promise

Over the last decade, several states and communities have tried to provide earlier notification of financial

aid through early commitment programs associated with particular (often private) grants or scholarships.

For example, three states (Indiana, Oklahoma, and Washington) adopted broad early commitment

programs targeted to students from lower-income families. 11 These programs seek to provide middleschool

and early high school students with the knowledge that college will be affordable if they “do their

part,” which is generally defined as meeting a relatively modest GPA requirement in high school, staying

out of significant trouble, and attending an in-state college or university while filing the FAFSA each

year. In one example of such an initiative, St. John and his colleagues (2004) conclude that the Indiana

program may have induced greater numbers of students to enroll in college.

In addition, dozens of cities and towns have adopted their own versions of “promise” programs to induce

families to stay in or relocate to their community. 12 For example, the Kalamazoo Promise guarantees that

students who live in the school district and attend public schools from elementary through high school

will receive a grant equivalent to the cost of tuition and fees at in-state public institutions. Emerging

evidence suggests that students who know they will receive a large scholarship to attend college because

of the Kalamazoo Promise work harder in high school, and teachers expect more from them (Bartik

& Lachowska, 2012; Jones, Miron, & Kelaher-Young, 2012). The availability of the grant may also be

associated with encouraging students from low-income families to apply to more selective and expensive

public universities in Michigan (Andrews, DesJardins, & Ranchhod, 2010). Of course, no causal claims

can be supported with the kinds of research designs currently used; it is difficult to find appropriate


comparison groups to estimate effects. A randomized trial of one small-scope, early commitment

program in Milwaukee may produce additional findings, but not for several years (Harris & Orr, 2012).

CSAs as an Early Commitment Financial Aid Strategy

Schwartz (2008) defines an early commitment program as a financial aid program that, “(1) makes a

certain commitment in the early years of high school (or before); or (2) imposes conditions (such as a

relatively modest high school GPA) that many students believe they can actually meet by the time they

graduate from high school” (p. 120). Schwartz also highlights the point that early commitment programs

with stringent requirements such as the Mississippi Eminent Scholars Grant (MESG), which requires

students to have a GPA of 3.5 to be eligible, force students to assess the likelihood that they will actually

receive the aid when they reach college age. If this possibility is deemed unlikely, the criteria may be

set too stringently, giving the early commitment program relatively little power to influence students’

behavior and expectations. Schwartz (2008) states, “The children of high-income parents have a strong

early commitment in that they can usually assume, from an early age, that their parents will pay their

college expenses” (p. 118). Another way of saying this is that high-income children have internalized

a strategy for paying for college similar to that espoused most aptly by presidential candidate Mitt

Romney. 13 When talking to students about how they should pay for college, he said, “You should borrow

money from your parents.” 14 Needless to say, this strategy is not available to lower-income or many

moderate-income students and, as a result, they do not grow up with the same assurance as their higherincome

peers that college is a viable path for them. When it comes to equalizing educational outcomes,

this might really matter.

In their simplest form, CSAs can be thought of as savings accounts for children. However, understanding

of the academic, psychological, and economic effects of assets on children’s educational trajectories

suggests that CSAs have the potential to serve as a policy vehicle to allocate resources (intellectual and

material) to low- and moderate-income children so they can compete in the 21st century. This is because,

unlike a basic savings account, CSAs leverage investments by individuals, their families, and, in some

cases, third parties, with investments from the federal government. An example of such a policy is the

concept of specially designed CSAs offered at birth. The proposed ASPIRE Act (American Savings for

Personal Investment, Retirement, and Education) would do this for every newborn, seeding the accounts

with initial contributions of $500 or more for the most disadvantaged and providing opportunities for

financial education and incentives for additional savings. When account holders turn 18, they would be

permitted to make tax-free withdrawals for costs associated with postsecondary education, first-time

home purchase, and/or retirement security.

The effects of interventions earlier in a child’s life have the potential to compound over time. For this

reason, economic theory suggests that interventions conducted in childhood could be more effective

than those conducted in adolescence and, similarly, interventions targeted to younger adolescents may be

more effective than those directed primarily at young adults. Researchers have shown that the returns of

interventions earlier in a disadvantaged child’s life are higher than from interventions in adolescence, and

there is no trade-off between equity and efficiency in these early interventions (e.g., Cunha & Heckman,

2010; Heckman & Masterov, 2007). Because of this, we would expect that early interventions to improve

family financial literacy and increase family assets—both important components of CSAs and predictors

of college readiness and success—would be more successful than later ones.


Financial education programs have been a part of what it means to start and run a CSA program. An

emerging body of research suggests that financial education programs offered to children when they are

young can be effective tools for teaching children financial concepts. For example, Sherraden, Johnson,

Guo, & Elliott (2011) use data from a four-year, school-based financial education and savings program,

called “I Can Save” to analyze program effects on financial knowledge acquisition. They find that

children who participated in the program scored significantly higher on a financial literacy test taken

in fourth grade than did a comparison group of children in the same school. Mandell (2006) finds that

middle-school students exposed to a financial literacy seminar received substantial benefits, with the

largest gains in financial knowledge accruing among the youngest students. But the effects of financial

literacy programs in high school are less positive; for example, Peng, Bartholomae, Fox, & Cravener

(2007) and Mandell & Klein (2009) find no long-term effects of taking a financial literacy course in

high school. However, relatively few financial education interventions target students before high school,

which concerns both researchers and policymakers (McCormick, 2009), particularly given evidence

suggesting that low-income students are disadvantaged in terms of financial knowledge and skills,

compared to their higher-income peers.

In addition to financial education, household assets also might have cumulative effects on children’s

college outcomes (e.g., Huang et al., 2010). In a study examining college attendance, Huang, Guo et al.

(2010) provide some evidence of assets’ potential for cumulative effects. They find that early liquid assets

(liquid assets the household has while children are between ages 2 and 10) have a significant relationship

with children’s long-term outcomes. Low household assets, on the other hand, can have negative effects.

Elliott (2013a) follows the same group of children in the Panel Study of Income Dynamics (PSID) ages

1 to 5 in 1989 and ages 21 to 25 in 2009. He finds that children who lived in families that experienced a

spell of asset poverty or an asset shock have lower academic achievement scores, high school graduation

rates, college enrollment rates, and college graduation rates than children living in families that do not

experience one of these events. 15

Similarly, Williams Shanks and Robinson (2013) suggest that CSAs can only be effective when

children live in positive or tolerable stress environments. This appears to be in line with a contextual

developmental approach to economic socialization theory that takes into account children’s social

background (factors such as family income, parents’ education, and employment). From this perspective,

social background has an indirect influence on the development of children’s human capital through

the context of the family (Ashby, Schoon, & Webley, 2011). In line with economic socialization theory,

financial institutions and the policies regulating them largely rely on the family as the main, though not

sole, institution for connecting children to institutionalized saving opportunities.

Parental Investments in Their Children’s Human Capital Development

Poverty clearly plays some role in perpetuating educational inequities for individual children and,

collectively, compromising the achievement and productivity of generations of American children.

Ideally, then, poor children would not have their abilities diminished by their environments at a young

age, putting them at what most people would call an unfair disadvantage in school. Instead, like their

high-income counterparts, their environments would augment their own effort and ability, so that the

positive effects of CSAs might be magnified. From this perspective, parental investments of money

are important to the development of children. Sherraden (1991) suggests that asset accumulation


allows parents to invest both time and money into their children’s future. Parental investments include

consumer goods such as clothes, adequate housing, good nutrition, toys, and games. Parents also

invest in children’s human capital development when they purchase such things as homes in better

neighborhoods, high-quality child care, tutoring, music lessons, and computers.

Given the positive returns on a college education in the U.S. economic context, it is common for families

to invest generously in their children’s education. According to Lino (2012), on average, families allocate

about 17% of their total budget to education-related expenses from birth through age 17. This adds up to

about $38,576 in education-related expenditures before figuring in college costs. These investments are

increasingly in human capital development, not consumer goods (Kornrich & Furstenberg, 2010). Given

this, inequality in parental investments may lead to some children gaining an advantage over others in

school, irrespective of innate ability. It is not surprising that, given what we know about wealth inequality

in America (e.g., Oliver and Shapiro, 1995), evidence suggests that wealthier parents are able to invest

more in their children’s futures than their poor counterparts. For example, Mauldin, Mimura, and Lino

(2001) find that families with higher incomes have a higher probability of spending on educational

expenses such as books and school supplies. Among families that do spend money on their children’s

education, there is a 9% increase in amount spent per $10,000 increase in income. As a result of unequal

parental investments, correlated to inequalities in parental resources, education might actually be helping

to maintain the intergenerational transmission of class we see in the United States, a topic we discuss

more in Chapter 4.

Not only are parents more likely to invest in children’s human capital development now than in the past,

they invest at critical times when children are young (under age 6) and when they are nearing college

age (Kornrich & Furstenberg, 2010). This shows certain common knowledge about the importance

of education in children’s futures and also about the most crucial times to invest. There is mounting

evidence that early investment in children is critical to how they perform in school, as well as to their

labor market outcomes (Cameron & Heckman, 2001; Cunha & Heckman, 2008; Votruba-Drzal, 2006).

Moreover, Cunha and Heckman (2008) find that cognitive and noncognitive skills might be affected

differently by parental investments at different times during a child’s development. More specifically,

they find that parental investments are particularly important for cognitive development at earlier

ages (6 to 7 years of age). In the case of noncognitive skills, they find that parental investments are

particularly important closer to 8 to 9 years of age. Similarly, Votruba-Drzal (2006) finds that parental

investments are more important during earlier childhood (between ages birth to 5 to 6 years of age) for

children’s cognitive development (which primarily affects later academic achievement), while during

middle childhood (between ages 5 to 6 to 11 to 12 years of age), they are more important for children’s

noncognitive development (which primarily affects later behavior and socioemotional development).

However, Votruba-Drzal (2006) suggests that a reason why parental investments might not have been

significantly related to academic achievement during middle childhood is because it might take a longer

time for middle childhood effects to occur (i.e., investments at ages 5 to 6 showing up by ages 11 to 12).

Other research suggests these effects might not show up until adulthood (Duncan et al., 1998; Pungello,

Kupersmidt, Burchinal, & Patterson, 1996).

Contributing to scholarship suggesting that the timing and dosage of parental investments may be

significant, some research suggests that after a certain level, parental assets may actually reduce children’s

GPAs while they are in college (Hamilton, 2013). Hamilton (2013) points out that there are two


different perspectives on parental investments, what she calls the “more-is-more” perspective and the

“more-is-less” perspective (p. 73). She also draws attention to rising concern by sociologists that parent

investments are extending further into adulthood, freeing children from responsibility. Using moral

hazard theory, she suggests, “When applied to this case, moral hazard theory suggests that parental aid

can provide an educational disincentive for children. Children may direct more effort to school when

they personally feel the economic costs of poor performance” (p. 74). However, her findings present a

more nuanced picture, one in which parental investments reduced GPA but were positively associated

with college completion. So, students appeared to lower their performance but not to a level where they

would have to leave college. Given that many of the positive economic effects of postsecondary education

accrue with college graduation, these advantaged students may not pay a long-term price for their

decreased personal investment in academic achievement.

Hamilton (2013) also indicates that parental investments might differ from other forms of financial aid

or ways of paying for college. In regard to the unique qualities of parental investments, she discusses

how grants and scholarships now are often merit-based and tied to performance, while work-study

and veteran benefits come with obvious costs—in effort expended—to the child. Similar to parental

investments, loans are most often not tied to performance. Moreover, children are not obligated to pay

them back until after college, in most cases. Another important point Hamilton (2013) makes that

has potential implications for CSAs is that, unlike when children are in K‒12 and they remain under

the watchful eye of parents and teachers, when children are in college, it is much harder for parents to

monitor their performance. Hamilton (2013) suggests that merit-based aid and work-study monies

might, “come with a sense of having been earned rather than bestowed” (p. 91). The same might be

true of money in a CSA that is in children’s own name or over which children have control. It is their

money and they are asked to participate in accumulating it, which also may influence how they spend it.

If one considers the process of obtaining a college education as an example of a consumer transaction,

“spending” one’s investment on higher education also includes how one engages with the education,

suggesting that empowered “student consumers” may differ from others in some characteristics important

for determining academic success.

Empowering Children Maximizes CSA Effects

Research and policy on savings, even within the asset field and among CSA proponents, often overlooks

children as agents, capable of saving and participating in their own development of financial knowledge

(e.g., Hogarth, Anguelov, & Lee, 2003, 2005). Neoclassical economic theory treats children and

adolescents the same as it does low-income individuals in one important way—as lacking sufficient

income to save. This view of children is articulated most clearly in the life-cycle hypothesis (LCH), the

predominant model of saving in economics today (Harrod, 1948). Partly due to the belief that children

have little money of their own to save, research related to children’s saving has largely focused on the role

families play in developing children’s attitudes and behaviors toward saving, as evidenced in theories like

economic socialization theory or a contextual development approach to economic socialization (Sonuga-

Barke & Webley 1993; Webley, Levine, & Lewis 1991). According to this line of reasoning, parents

provide both the wealth and knowledge children need to participate in the formal banking system.

Children are seen more as passive subjects, which may have implications for how they come to see

themselves and the limits of their own economic agency. Evidence of the pervasiveness of the belief in

children as passive participants in their own financial lives can be found in parents’ beliefs about children


and wealth building. For example, Danes (1994) finds that 54% of parents think children are not ready to

build assets until around age 18.

This does not mean, however, that children do not play an active role in their own development or,

indeed, that they should not be encouraged to do so, particularly given the evolving evidence about the

psychological effects of asset accumulation and how “owning” assets dedicated to education may shape

children’s attitudes and expectations about their own futures. In the next section we briefly discuss

research on children as socializers.

Children as Agents

Over the last 20 years, recognition has emerged among some researchers in a number of fields that

children are not mere recipients of socialization but rather agents actively negotiating meanings of

language and influencing the language of their parents and others (Wenger, 1998). Sociologist Corsaro

(2005) states, “children are active agents who construct their own cultures and contribute to the

production of the adult world” (p. 4). How might children act as socializers within the context of saving

for college? One, but certainly not the only, way this might happen is by modeling for parents positive

expectations for graduating college. As discussed in Chapter 1, research suggests that having savings

for school might lead to more positive expectations about graduating from college (e.g., Elliott, Choi,

Destin, & Kim, 2011). Having positive expectations about graduating from college may be related to

parents investing more in children (Elliott & Friedline, 2013; Flint, 1997; Powell & Steele, 1995). Elliott

and Friedline (2013) find evidence that when high school students expect to graduate from college, they

are more likely to report that their parents contribute to paying for college when they enroll than if they

do not expect to graduate from college.

Moreover, as a society we have thought about children for quite some time now as agents within the

consumer market (Langer, 1994, 2005; Cook, 2004, 2008) and for good reasons. Research suggests

that children spend approximately $24 billion of their own money on goods and services, including

food, clothing, and entertainment, annually (Chandler & Heinzerling, 1998, p. 61). As a result, from

a consumer perspective, children are perceived as having needs, having money of their own to spend

on what they want, and having a desire to spend that money. In fact, research reveals that children’s

discretionary income has increased considerably (Calvert, 2008), and advertising and marketing have

responded by directly and indirectly targeting children from birth (Marshall, 2010). Businesses such

as the Hyatt Regency target children by advertising in the Sports Illustrated for Kids magazine, while

Coca-Cola reportedly spent around $8 million for a sales agreement with a school district (Chandler

& Heinzerling, 1998). Other companies use a combination of creative and interactive games, rewards,

or brand-related advertising to get children to buy their products (Lascu, Manrai, Manrai, & Amissah,

2013). It is not only advertising agencies that view children as agents within the consumer market,

but also families, and this socialization begins at a very young age. According to John (1999), children

as young as age two are given some role in the family purchasing decision making, such as being

“commonly allowed to select treats at the grocery store, express desires for fast food, and indicate

preferences for toys on visits to Santa” (p.196). Further, children ages 3 and 4 may participate in three

distinct consumer roles: as decision makers, purchasers, and users of consumer goods and services

(Chandler & Heinzerling, 1998). Between ages 7 and 11, children develop more complex negotiating

skills and learn to bargain with and persuade parents to make purchases they would not have otherwise


( John, 1999; McNeal, 1987). If we perceive of children at a very young age as agents when it comes to

consumption, why not when it comes to saving?

Understanding children as agents seems crucial for realizing the full potential of CSAs for changing

children’s educational outcomes. A reason why this claim is made is because if we can begin to

understand children as agents with regard to saving, we can begin to understand how CSAs might work

to strengthen their ability to act and shape their own financial futures. Think about it: if we spent as

much money on targeting children as savers and investors as we do as consumers, would they become

as sophisticated with respect to saving as they are now in consuming? This shift in thinking among

researchers, policymakers, the media, educators, and parents may be an important part of maximizing the

potential of CSAs as an early commitment financial aid strategy.

Building a Sense of Control in Children

CSAs are likely to have their most valuable effect on children’s educational outcomes by affecting their

noncognitive skills. Such skills are not trivial; they may have significant effects on children’s academic

and overall life achievement. Identifying strategies for developing these critical capacities in children is

essential; research suggests that while noncognitive skills promote the development of cognitive skills,

there is little evidence to suggest that cognitive skills promote the development of noncognitive skills

(Cunha & Heckman, 2008). Perceived control is an example of a noncognitive skill discussed in Chapter

2; research indicates that it is a very important predictor of children’s educational outcomes (Bandura,

1997; Skinner, Wellborn, & Connell, 1990).

CSAs act as an empowering tool for children, providing them with a mechanism to build assets of their

own and shape their financial futures. In turn, this might instill more of a sense of ownership and control

in children (Belk, 1988; Furby, 1980; Meeks, 1998; Wallendorf & Arnould, 1988). 16 This ownership

and control might extend to their sense of control over being able to finance college. In a study of 51

fourth-grade children in a college savings program, Elliott, Sherraden, Johnson, and Guo (2010) find

that children who are in the school savings program are statistically more likely to perceive that saving is

a way to help pay for college than are children in a comparison group. It may be that the greater control

children have over a CSA, the more a part of their own identity they are likely to perceive the CSA to

be, thus potentially increasing its effects (see Chapter 2).

Given the potential for an increased sense of control that CSAs may provide children, it might be that

having savings of their own is particularly important for lower-income children. Low- and moderateincome

children may not be able to count on household assets in the same way they can count on

money saved in their own accounts, and in many ways these are the children who are most in need of

help. Unlike children living in high-income households, children living in low- and moderate-income

households are far more likely to experience household assets being drained by such things as unexpected

car repairs, replacement of broken appliances, college expenses for older siblings, temporary bouts of

unemployment, and so forth.

As a result of having a greater sense of control, having their own savings for school may instill in

children, especially low-income children, a greater obligation to work hard in school (academic

preparation) and to save (financial preparation). With regard to saving, Perry and Morris (2005) find that


individuals who perceive they have control over outcomes are more likely to expend the effort necessary

to demonstrate responsible financial management behavior. Further, a long line of research indicates that

children who have a greater sense of control work harder in school (Bandura, 1997; Skinner, Wellborn, &

Connell, 1990). This is also a point made by Hamilton’s (2013) study discussed above.

Policymakers Are Beginning to Value CSAs, But More Research Is Needed

Public policy and the academic literature are beginning to recognize CSAs’ value as a cumulative impact,

early commitment financial aid strategy. In an effort to improve families’ financial ability to afford college

and encourage superior academic achievement by disadvantaged students, a number of cities, most

notably San Francisco, and states are turning to CSAs as a type of early commitment program.

Direct evidence of the potential of CSAs to improve children’s outcomes can be found in the SEED

for Oklahoma Kids (SEED OK) experiment, a randomized experiment of incentivized college savings

plan accounts for children at birth, or CSAs. The SEED OK experimental sample was drawn randomly

from birth records provided by the Oklahoma State Department of Health for all infants born from

April through June and August through October of 2007. Of the 7,115 infants identified as eligible for

the SEED OK experiment, primary caregivers of 2,704 infants agreed to participate and complete the

baseline survey by telephone between fall 2007 and spring 2008. Huang, Sherraden, Kim, and Clancy

(2013) use data from a follow-up survey in spring 2011 (n = 2,236) to test whether CSAs are significant

positive predictors of low-income children’s social-emotional development. Socioemotional development

measures children’s ability to self-regulate, their ability for compliance, and their ability to interact with

other people. They find that treatment group children with CSAs have more positive socioemotional

development than children in the control group.

More research is needed on the effects of CSAs on academic achievement and college enrollment and

persistence. Unlike research on household assets, when examining children’s academic achievement,

research to date that includes children’s savings has only used a cross-sectional design (i.e., children’s

savings and achievement are measured in the same year). In the two studies that use aggregate data,

children’s savings have a positive, significant association with math achievement. However, no studies

examine reading achievement using aggregate data. But with children nearing school age in the SEED

OK experiment, data will soon be available on children’s academic achievement in a CSA program.

The potential for cumulative effects that start in early childhood, along with CSAs’ potential for

creating positive postcollege outcomes, are important aspects of broadening the argument for including

CSAs as part of the financial aid system and for considering carefully the role of timing in influencing

financial aid efficacy. This idea of broadening the conversation around why CSAs might be an effective

complementary financial aid strategy was presented in Chapter 1. Unfortunately, however, most of the

focus of researchers, policymakers, and funders until now has been almost exclusively on college access,

and increasingly on college graduation, despite evidence suggesting that, in the long term, the challenge

of ensuring that disadvantaged students are prepared for postsecondary educational success may be even

more significant than the short-term need to help families afford college. Indeed, looking more narrowly

at inequities among students who are prepared for or even enroll in college disguises much of the root

of educational disparity in the United States today—the factors that conspire to depress educational

performance of disadvantaged children throughout their academic careers.


Key Points

This chapter addresses the potential role of CSAs as early commitment financial aid strategies

with the additional advantages of addressing the long-term challenge of disadvantaged students’

inadequate college preparation and the short-term need for financial assistance, compared to

financial aid issued only at the point of college enrollment. The key points of the chapter include:

• Higher education may not function as an equalizer in American society today,

given that there is evidence of little economic mobility for low-income and

low-wealth individuals, and that educational attainment is highly unequal among

different socioeconomic classes.

• The timing of financial aid—with awards and even financial information about

higher education coming at the point of enrollment—is problematic for lowincome

students whose college decisions may be hindered by uncertainty about


• A broader understanding of early commitment financial aid strategies can be seen

to include CSAs, since they allocate resources to low-income children so they can

compete in the 21st-century economy.

• Poverty can have cumulative effects on the lives and even the brains of lowincome

children, possibly through the medium of toxic family stress. As CSAs may

affect parental investments in the academic and social environments of children,

they may be part of interventions that mediate this context.

• Research suggests that early intervention is superior to investments made at the

point of college enrollment, particularly given evidence of the relationship

between savings and academic achievement prior to college. In the literature, assets

have been found to be associated with expectations about college attendance and

enrollment and with math achievement. CSAs’ potential to shape attitudes and

behaviors may increase the likelihood that disadvantaged students are academically

prepared for college, an important component of closing achievement gaps.

To maximize CSAs’ potential impact as early commitment financial aid strategies, programs and

policies should view children as agents with some control over their own financial and educational

outcomes, not as passive subjects completely bound by their family contexts.


Summary of K–12 Findings:

Fourteen studies examine the relationship between household assets and children’s K‒12 outcomes (for

full review see Appendix B).

• Reading: Five out of the 14 studies include reading as an outcome.

o Two find that assets are not significant.

o Three find that some type of asset (e.g., net worth or a liquid asset) is a positive

significant predictor.

• Two of the 3 that find an asset to be significant have mixed results.

• Differences by age:

o Not significant at ages 3 to 5; significant at ages 6 to 12

• Math: Six out of the 14 studies include math as an outcome.

o Six out of the 6 find that assets are significant.

• Differences by age:

o Not significant at ages 3 to 5; significant at ages 6 to 12

• Differences by race:

o Stocks/IRAs significant for Black children

o Cash accounts significant for White children

• Combined Reading and Math: Two out of the 14 studies include a combined math and

reading score as an outcome.

o Both studies find that an asset is a significant positive predictor of combined math

and reading scores.

• GPA: One out of the 14 studies includes GPA as an outcome.

o Finds that assets are a significant positive predictor of GPA

• Expulsion: Two out of the 14 studies include school expulsion as an outcome.

o Both studies find that assets are a significant negative predictor of expulsion from


• Interest in School: One out of the 14 studies includes interest in school as an outcome.

o Finds that assets are a significant positive predictor of interest in school

• High School Graduation: Three out of the 14 studies include high school graduation as

an outcome.

o All three studies find that an asset is a significant predictor of high school


Five studies examine the relationship between children’s assets and children’s K‒12 outcomes. Key

findings summarized:

• Reading: One out of the 5 studies includes reading as an outcome.

o Findings by gender and race (e.g., male/Black; White/Black)

• Children’s school savings are significant for Black males only.

• Net worth is not significant for any group.

• Math: Five out of the 5 studies include math as an outcome.

o Three out of the 5 find that a type of children’s savings is significant.

• Two out of the 5 find mixed findings.


• Differences by race:

o Children’s school savings are positive and significant for White

children; they are not significant for Black children.

o Net worth is not significant for Black or White children.

• Differences by race and gender:

o Children’s school savings are positive and significant for Black

males only.

o Net worth is positive and significant for Black males; significant

and negative for Black females; significant and negative for White

males; and not significant for White females.


Chapter 4



by William Elliott and Emily Rauscher


Evidence points to differences in asset accumulation as key to explaining college entrance and

completion gaps among different populations of American children. Minority and low-income

children have many of the same aspirations for college as more advantaged children, but their

college enrollment and completion rates lag. Children’s savings for school, even at very low levels,

may empower low-income children who graduate from high school to enter and succeed in college.

Some of these college completion effects may be a result of children’s changed engagement with

educational institutions, which they see as supporting their aspirations and consistent with their

normative expectations. Children’s savings accounts can and should be a step toward changing the

educational trajectories of disadvantaged, but talented, children in the United States.

Addressing the Expectation Paradox with CSAs

In this chapter we discuss the expectation paradox that low-income children face: A sizable number of

minority and low-income children work hard at school and have the ability to attend college, but fail to

transition to college after high school graduation or to succeed once enrolled. For example, about 52% of

low-income and 82% of high-income children enrolled in a two-year or four-year college immediately

upon graduating high school in 2010 (Aud et al., 2012). Even bigger gaps exist when considering college

graduation rates. For example, Bailey and Dynarski (2011) find that children from high-income families

are six times more likely than children from low-income families to complete a bachelor’s degree by age

25. Another way of looking at this paradox is to compare students with similar achievement levels but

different incomes. For example, the lowest-achieving children from high-income families attend college

at a much higher rate than the lowest-achieving children from low-income families (65% versus 33%,

respectively). Similarly, 88% of the highest-achieving children from high-income families attend college

while only 69% (a similar percentage to the lowest-achieving, high-income children) of the highestachieving

children from low-income families attend college (ACSFA, 2010).

This paradox might provide one of the more vivid illustrations of failure of the education path to act

as the great equalizer in today’s society. It suggests that addressing the educational challenges facing

disadvantaged children today will require innovations that can create greater equality of opportunity, so

that their innate talents and academic effort can translate into meaningful access to college.

In a report to Congress by a group charged with enhancing access to postsecondary education for lowincome

children, ACSFA (2001) suggests that poor children’s pattern of educational decision making is


not the result of choice or academic preparation: “Make no mistake, the pattern of educational decision

making typical of low-income students today, which diminishes the likelihood of ever completing

a bachelor’s degree, is not the result of free choice. Nor can it be blamed on academic preparation,”

(ACSFA, 2001, p. 18). This suggests that an uneven playing field exists, so effort and ability may no

longer be the determining factors in who succeeds within the education system.

In a national survey of college–qualified, low-income students, Hahn and Price (2008) find that over

80% of noncollege-goers identified financial aid as “extremely” or “very” important in their decision not

to enroll in college. 17 These concerns appear to lead to inaction. The authors find that among collegequalified,

low-income students who do not enroll in college, only 15% applied to any college, 12%

applied for financial aid, 10% took the SAT, and 7% took the ACT. These college-qualified non-goers are

disproportionately minority (52%) and low- and moderate-income (38%). In a 2006 report, the ACSFA

finds that during the 1990s, between 1 and 1.6 million college-qualified high school graduates did not

earn a bachelor’s degree, and they estimate that between 1.4 and 2.4 million will be lost in this decade. 18

The estimates exclude those college-qualified, low- and moderate-income students who do not graduate

high school.

One way to capture the effect of financial constraints on actual college attendance is to identify children

who expect to graduate college but do not attend college soon after graduation. For example, using a

sample of high school seniors who expected to earn a college degree after leaving high school, Hanson

(1994) examines whether talent loss is stratified by gender, race, or socioeconomic status. One way she

defines talent loss is when children who, while in high school, expect to graduate from college but fail

to attend college six years after leaving high school. She finds that socioeconomic status is a stronger

predictor of talent loss than either gender or race. In a similar study published in 1999, Trusty and Harris

(1999) restricted their sample to eighth-grade children who have above-median scores in reading and

math. They build on Hanson’s (1994) research by including material resources in the home (i.e., availability

of printed educational materials and computers). In addition, they define socioeconomic status as parents’

educational levels, income, and occupational prestige. They also find that low socioeconomic status is the

strongest predictor of lost talent. In 2006, ACSFA examined the paradox between high expectations and

low college enrollment rates among low-income, high-achieving children. ACSFA (2006) referred to the

difference between the percentage of children who expect to attend a four-year college and the percentage

who actually do attend as “melt.” The committee found that 70% of low-income children planned in 10th

grade to enroll in college, but only 54% actually enrolled upon graduating from high school. Thus, by

ACSFA’s calculation, 23% of low-income children experienced melt.

“Wilt”: The Gap Between Expectation and Attainment

Elliott and Beverly (2011b) build on expectation-paradox research by including assets in their analysis.

Instead of calling this paradox “melt,” Michael Sherraden suggested it would be more suitable to call it

“wilt,” which “conjures up a more fitting image that of a growing plant losing vitality due to a lack of

resources” (Elliott & Beverly, 2011b, p. 167).

Figure 5 provides statistics on children’s expectations, college enrollment at a four-year college, and

wilt by children’s savings amount. A smaller percentage of children with no savings of their own as

adolescents expects to graduate from a four-year college than children with only a basic savings account


or those who have mentally designated a portion of their basic savings for college (proxy for having

school savings). The gap is wider in the case of school savings than it is for basic savings. There is a 17

percentage point gap between children who have school savings as adolescents (81%) and children

without accounts (64%). In comparison, there is only a four percentage point gap between children

who have basic savings as adolescents and children without accounts (68% versus 64%). The lower

expectations among children who only have basic savings might help explain why wilt is lower in the

case of basic savings (20%) compared to school savings (26%) and why Elliott and Beverly (2011b) find

that basic savings have a stronger association with reduction in wilt than school savings; that is, there

is a much higher chance of wilt in the case of school savings than in the case of basic savings, perhaps

because students with very high expectations about college attendance are more likely to save specifically

for college. However, whether it is basic savings or school savings, Elliott and Beverly (2011b) find that

having savings is associated with a reduction in wilt.

Figure 5. College Expectations, Enrollment, and Wilt






Source. Elliott & Beverly, 2011b.

Expected to Graduate

from 4-Year College in


Enrolled in a 4-Year

College by 2005

Wilt-Expected but did

not Enroll in a 4-Year


Full Sample 73% 68% 32%

No Account 64% 45% 55%

Only Basic Savings 68% 80% 20%

School Savings 81% 74% 26%

Elliott, Song et al. (2013a) and Friedline, Elliott, and Nam (2013) build on Elliott and Beverly (2011b)

by examining different amounts—having no account, only basic savings, or savings designated for

school—and relation to graduation and wilt. Figure 6 illustrates how children’s expectations differ by

race, income, and amount of children’s savings (with breakouts by different levels of savings). Generally,

higher percentages of children expect to graduate from college (two-year or four-year) as savings amount

rises, regardless of race or income. Moreover, there appears to be less variation in expectations by race

and income when children have higher amounts of school savings.


Figure 6. College Graduation Expectations in 2002 at a Two-Year or Four-Year College






No Account

Source. Elliott, Song, & Nam, 2013b.

Only Basic


School Savings

of Less than $1

School Savings

from $1 to $499

School Savings

of $500 or more

Black 64% 74% 83% 87% 94%

Full Sample 69% 77% 88% 89% 96%

High-Income 76% 88% 89% 98% 97%

Low-Income 66% 65% 87% 82% 95%

White 78% 78% 90% 90% 97%

Figure 7 illustrates wilt findings by race, income, dosage of children’s savings and graduation from a twoyear

or four-year college. With respect to wilt, the most observable difference is between no account and

school savings of $500 or more. The descriptive findings are consistent with the multivariate findings.

Among children who expected to graduate from college while in high school, Elliott, Song et al. (2013b)

find a low- and moderate-income child who has school savings of $1 to $499 before reaching college age

is about four times more likely to graduate from college than a child with no savings account.

Figure 7. Wilt—Expected to Graduate from College in 2002, Did Not Graduate a Two-Year or Four-Year

College by 2009






No Account

Source. Elliott, Song et al., 2013b.

Only Basic


School Savings

of Less than $1

School Savings

from $1 to $499

School Savings

of $500 or more

Full Sample 87% 68% 75% 69% 54%

High-Income 69% 56% 69% 65% 48%

Low-Income 93% 87% 85% 73% 65%

Black 92% 69% 92% 73% 63%

White 79% 68% 69% 66% 50%


Moreover, with regard to Black children who expected, while still in high school, to graduate from

college, those who had school savings of $1 to $499 are four times more likely to graduate from college,

and those with school savings of $500 or more are 3.5 times more likely to graduate from college, than

those Black children with no savings account.

CSAs May Improve College Enrollment Rates

Research suggests that simply providing low- and moderate-income children and Black children with

an account might have a positive effect on whether they enroll in college, even if their eventual savings

for school are very small (Elliott, Song et al., 2013a; Friedline, Elliott, & Nam, 2013). While it is not

clear in Figure 8 that having savings reduces the college enrollment gap at all savings levels, descriptive

data indicate that the percentage of children who enroll in college from each income and racial group

is higher when they have savings for school than when they have no account as a child. Multivariate

statistics support the contention that having school savings as a child improves the chances that lowincome

and Black children will enroll in college. For example, a low- to moderate-income or Black child

who has school savings of $1 to $499 before reaching college age is about three times more likely to

enroll in college than a Black child with no savings account (Elliott, Song, et al., 2013a; Friedline, Elliott,

& Nam, 2013).

Figure 8. Ever Enrolled in College by 2009 by Race and Income






No Account

Only Basic


School Savings

of Less than $1

Sources. Friedline, Elliott, & Nam, 2013; Elliott, Song et al., 2013a.

School Savings

from $1 to $499

School Savings

of $500 or more

High-Income 84% 90% 95% 90% 94%

Low-Income 45% 49% 71% 65% 72%

Black 48% 56% 79% 79% 69%

White 65% 76% 89% 75% 93%

Appendix C provides an overview of relevant studies on college enrollment, including methods and



Inequalities Deepen After College Enrollment

While successful college graduates—particularly those who enjoyed the privilege of wealthy, higherclass

parents—may prefer to think of college as a meritocracy, it is not (Bowen et al., 2009; Espenshade

& Radford, 2009). Disparities in college completion rates exist by parental income, parental education,

cultural and social capital, mental and physical health, family structure, and academic preparation. In

addition to these inequalities, a relatively recent line of research shows that assets—more unequally

distributed than income (Mishel et al., 2013; Oliver & Shapiro, 1995)—are also important for college


Each of these factors is difficult enough to address on their own. However, these inequalities work

together with the education system to make unequal college completion—and inequality in general—

appear legitimate. One way that social inequality interacts with the education system to reproduce

inequality is through institution type. Throughout this chapter, we have largely assumed a similar

institutional context among college students. However, when it comes to both determining the

likelihood of college attainment and, subsequently, reaping the economic and social benefits of the

degree after graduation, it is clear that not all higher education is created equal. The type of institution

a student attends—e.g., two- or four-year, private or public, selective or non-selective, and size—has

important implications for the likelihood of graduating (Carnevale & Strohl, 2010). Two-year colleges

have lower retention rates than four-year schools, even after accounting for differences in the types of

students (Tinto, 1987). Because those who attend two-year schools tend to come from families with

fewer advantages, these retention differences exacerbate inequality. Similarly, private and more selective

postsecondary institutions have higher retention rates on average. As Davies and Guppy (1997) point

out, student socioeconomic status is related to the likelihood of entering a selective college, and even

choosing a lucrative major within a selective college. Low-income students attending private or selective

schools are also more likely to encounter socioeconomically advantaged peers, who can positively

influence graduation, catalyze formation of social networks, and help low-income students bridge gaps of

cultural capital.

Beyond institution type, student pathways through college represent another way in which inequalities

interact with the education system to transmit advantage between generations. Lower class students

(with parents who have less education and lower incomes) are more likely to: (a) to transfer from a

four- to two-year school (Goldrick-Rab & Fabian, 2009); and (b) to transfer between postsecondary

institutions with time gaps between leaving one school and entering another (Goldrick-Rab, 2006).

These differences have implications for the likelihood of degree completion and returns (Cabrera,

Burkum, & La Nasa, 2005; Elman & O’Rand, 2004). Even within the same school, experiences can vary

drastically. Cabrera et al. (2005) find that the biggest difference between low-income students and others

is the likelihood of taking at least one math and science course; the former are more than 30% less likely

to take either a math or science course. At the same time, math and science course taking, along with

academic performance and continuous enrollment, are some of the most important factors predicting

degree completion. Beyond graduation, failing to complete these courses closes off many potentially

lucrative career options.

Experiences at college are also important for degree completion. Low-income students experience more

instances of class discrimination, which in turn reduces school belonging and increases intentions of


dropping out (Langhout, Drake, & Rosselli, 2009). Although positive academic and social experiences

at the school increase the likelihood of completing a four-year degree (Cabrera et al., 2005), these too, it

seems, are unequally distributed by class.

Despite the impact of institutional differences, they often remain hidden. In explaining why a student

dropped out of college, many individuals’ first thoughts might be that she could not do the work

or did not try hard enough. In fact, the college may deserve much of the blame. In this way, the

intergenerational transmission of inequality is papered over.

The above review provides clear evidence of unequal access to a college degree, even once low-income

and minority students have hurdled obstacles to college admission. Still, Americans often portray the

education system as “the great equalizer” (Mann, 1848, p. 59), and college graduates are likely to believe

that their degrees are solely the result of their hard work.

Figure 9 depicts college graduation rates by income, race, and dosage of children’s savings. Here, the

effects of asset holdings on persistence through graduation are seen; as the dosage of children’s savings

rises so do graduation rates, regardless of race or income.

Figure 9. Graduated From a Two-Year or Four-Year College by 2009






No Account

Only Basic


School Savings

of Less than $1

Sources. Friedline, Elliott, & Nam, 2013; Elliott, Song et al., 2013a.

School Savings

from $1 to $499

School Savings

of $500 or more

Full Sample 13% 32% 25% 31% 46%

High-Income 34% 44% 31% 35% 52%

Low-Income 7% 13% 15% 28% 35%

Black 8% 31% 8% 27% 37%

White 21% 32% 31% 34% 50%

Appendix D provides an overview of relevant studies on college completion, including methods and

findings. To summarize the evidence, of the 15 studies that investigate any college completion (either

a two- or four-year degree), 14 find a significant relationship with at least one asset measure. Three of

those 14 studies find that asset results differ by race or income. Two studies investigate the relationship

between assets and four-year college completion, both finding a significant relationship, but one finds

that results differ by gender. Finally, one study finds a significant relationship between assets and total

years of schooling.


CSAs Align Normative and Role Expectations

The evidence above illustrates the pressing issue of high college dropout rates in the United States.

Students who leave represent a substantial loss of both financial investments (from society, parents,

and individuals) and opportunity. Given that college access and retention are so unequal by class and

race, this issue is critical for improving equality of opportunity in the United States and maintaining

the American dream. Even beyond opportunity, however, the United States must find ways to reduce

wilt to increase efficiency of college investments. Assets represent an attractive policy strategy that—

with limited financial investment—could increase college attendance and reduce wilt, thus increasing

the chances that money invested in college students translates into college graduation. This section

examines how assets might help reduce wilt by aligning normative and role expectations for low-income

and minority students. Normative expectations—shared ideals about how institutions respond to

individuals—reflect societal norms; democratic societies teach that they apply to everyone, not only to

a dominant group or groups. Normative expectations are validated by mainstream values and shared by

most people within the society (Gould, 1999; Luhmann & Albrow, 1985). The institutional facilitation

framework emphasizes three normative expectations: (1) the American dream, (2) individualism (human

agency), and (3) education as a path to economic mobility. These normative expectations may help us

to understand educational differences within the American educational context and how change might

come about.

According to Shapiro (2004), the American dream “is the promise that those who work equally hard

will reap roughly equal rewards” (p. 87). The American dream serves the purpose, at least in pretext, of

providing everyone with equal opportunity. Under such an understanding, effort and ability are seen

as the determining factors in who succeeds and who fails (i.e., America is a meritocracy). This leads us

to the second normative expectation—individualism, or the belief that individuals, not institutions, are

causes of things that matter. For example, Gilens (1999) finds that 96% of Americans agree with the

assertion, “People should take advantage of every opportunity to improve themselves rather than expect

help from the government” (p. 35). This suggests that people believe opportunities generally exist for

everyone (i.e., institutions treat everyone the same) and that it is up to the individual to take advantage

of those opportunities. Because people maintain their belief in the basic idea of the American dream,

they resist institutional explanations for explaining variations in individual outcomes.

The third normative expectation is the belief in the idea of education as a path to social and economic

mobility (Ogbu, 1983). According to Elfin (1993), “Of all the truths that this generation of Americans

holds self-evident, few are more deeply embedded in the national psyche than the maxim, ‘It pays to

go to college’” (p. 1). Researchers find that almost all students aspire to attend college (94%), and most

parents (96%) want their child to attend college (Horn et al., 2003). A 2012 Sallie Mae/Gallup Poll

showed that 77% of parents strongly agreed that college is an important investment in their children’s

futures (Sallie Mae, 2012). Children are even more emphatic. About 80% of children in 2012 strongly

agreed that college is an investment in their future. These data show that many people see education as a

path to economic mobility. Collectively, these normative expectations help maintain people’s belief in the

legitimacy of American institutions. They make up a system of beliefs that allows individuals to maintain

at least a faint hope that they can overcome their current situation or that their children can.

Unfortunately, once minority or low-income children arrive in school, they often find that their own


actions are not producing the kinds of institutional responses that American normative expectations

predict, creating “cognitive expectations” that are at odds with the normative expectations that constitute

the American dream.

In contrast to normative expectations, role expectations are based on the historical and contemporary

experiences of a particular social group with institutions and their resources for achieving desired ends.

Role expectations are similar to Knight’s (1992) notion of social expectations: they are socially shared

expectations about how a person as a member of a group can be expected to act with regard to a specific

domain. As such, they can be thought of as specifying a role that a person is to play in society. As Knight

suggests, the fact that role expectations are shared does not mean that all members of a community

accept or act on them.

Knight (1992) suggests that strategic actors (actors motivated by a desire to maximize their own goals)

make choices to achieve desired outcomes. People are strategic in the sense that they make choices based

on their expectations about the choices of others (Knight, 1992). According to Knight, institutions

affect the decision-making process of an individual by providing that individual with information about

the choices of others and by providing some form of sanction when an individual does not behave as

expected (Knight, 1992). Knight describes the struggle between strategic actors in this way,

In any single social interaction the task of a strategic actor is to establish those

expectations that will produce his desired distributional outcome, to constrain those

with whom he interacts in such a way as to compel them by the force of their

expectations to choose that strategy that will lead to the outcome he prefers (p. 49).

Role expectations differ from cognitive expectations in that they are part of the institutional context—

society forms and shares them for the group to which an individual belongs. In contrast, the individual, as

a result of his or her experiences (these experiences may differ from person to person within a particular

group) with using effort and ability to achieve desired outcomes forms cognitive expectations unique to

the individual’s experiences. Regardless of children’s cognitive expectations they are forced to perform

school-related activities in the context of socially shared role expectations for them. However, it is also

important to point out that the external context (normative and role expectations) cannot fully explain

children’s behavior because children possess agency and have varied experiences with respect to school.

In an institutional facilitation model (described in Chapter 2), there are three different categories of role

expectations: those that advantage some, those that create equality for all, and those that disadvantage

others. Role expectations that create advantage for some children unevenly increase the amount of return

a child can expect to receive from investing effort and ability into schooling. Role expectations that

disadvantage some children reduce the amount of return a child can expect to receive from investing

effort and ability into school. In the ideal scenario, institutions would be held constant and variation in

outcomes would be the result of personal capabilities—effort and ability. In other words, if U.S. society

worked the way many Americans believe it does, normative expectations and role expectations would be

in harmony with one another. Role expectations are critical because they represent the ongoing struggle

and institutionalization of rules that divert resources to be used to augment certain groups’ use of effort

and ability and not others’, constraining the action of those groups whose members are not provided

institutional benefits.


Transforming Power Into Right

More specifically, as Knight (1992) suggests, role expectations result from a struggle between individuals

(strategic actors) over the distributional advantage that institutions provide. In a capitalistic society, those

who have wealth are in a position of power over those who do not have as much wealth when it comes

to a bargaining situation (e.g., negotiation over where societal resources should be spent). To maintain

advantage, those who have wealth must transform this power into right; maybe this is why our political

apparatus has become so responsive to money and who has money (Ferguson, 1995). These power

transactions also occur at the local and individual levels. People with wealth transform their power into

right by structuring role expectations so they constrain the actions of minority groups and the poor.

An example of an institutionalized role expectation can be found in the current means-tested welfare

system in America. According to Sherraden (1990), welfare for the poor has traditionally been defined

in America as “the level of money, goods, and services received as income” (p. 580). Therefore, under

the current welfare model, the pattern low-income families walk into is a present-time-oriented or

consumption-based pattern of behavior; in contrast, the pattern higher-income families walk into

is future-oriented or asset-based. That is, the expectation set for the poor is that they cannot save

and should not accumulate wealth because to save or accumulate wealth, they would have to forgo

opportunities to eat or provide other basic needs now. Therefore, asset tests have been established that

require households to keep their liquid assets below limits set by federal or state governments to be

eligible for welfare programs such as Supplemental Nutrition Assistance Program (SNAP, formerly food

stamps). In contrast, we provide wealthy families with incentives to save and accumulate assets through

asset programs such as 401(k) plans, home mortgage tax breaks, 529 plans, and others. What we suggest

here is that a bifurcated welfare system exists in the United States: one branch focuses primarily on the

ability of the poor to consume goods, while the other focuses primarily on the ability of middle- and

high-income income families to accumulate assets. This system clearly sets very different expectations for

each group, and yields very different outcomes as well, contributing to the perpetuation of poverty.

Expectations are set at the local level as well. For instance, in Savage Inequalities: Children in America’s

Schools, Jonathan Kozol (1991) points out that school funding disproportionately favors affluent White

children. He identifies large variability in local property taxes for education as one of the most important

factors limiting life chances of poor Black children,

In suburban Millburn, where per-pupil spending is some $1,500 more than in East

Orange although the tax rate in East Orange is three times as high, 14 different AP

[Advanced Placement] courses are available to high school students; the athletic

program offers fencing, golf, ice hockey and lacrosse; and music instruction means

ten music teachers and a music supervisor for six schools, music rooms in every

elementary school, a “music suite” in high school, and an “honors music program” that

enables children to work one-on-one with music teachers. Leveraging property wealth

results in educational advantage for children living in affluent communities. Black and

poor communities, however, lack the wealth to access similar advantages. Meanwhile,

in an elementary school in Jersey City, seventeenth-poorest city in America, where the

schools are 85 percent nonwhite, only 30 of 680 children can participate in instrumental

music. (pp. 157, 158).


At the individual level, for example, Shapiro (2004) finds that White middle- and upper-class parents

gain an educational advantage by leveraging their homes (a key form of asset holding in America)

in what he refers to as, “a narrow, self-interested way” (p. 158). They do this by moving to better

neighborhoods where high-quality schools exist, using their individual power to exploit the disparities

in resources wrought by the local policy decisions referenced above. Shapiro (2004) suggests that parents

define high-quality schools by race and class. However, lack of wealth (primarily inherited wealth)

prevents many poor and Black families from moving into these neighborhoods and, therefore, from

accessing these schools and the opportunities they would afford to their children. Further, if too many

Black families move into a neighborhood with high-quality schools (wealthy, White schools), White

families leave the neighborhood (Shapiro, 2004).

It is not surprising that for minority and low-income children, role expectations are too often out of

harmony with normative expectations. Role expectations are critical because they represent the ongoing

struggle and institutionalization of rules that divert resources to augment certain groups’ use of effort

and ability and not others, constraining the action of those groups whose members are not provided

institutional benefits. However, the external context (normative and role expectations) cannot fully

explain children’s behavior because of the internal process (i.e., agency of children) that occurs and

the varied experiences that low-income children have with respect to school. So, while we see a high

percentage of low-income children who underachieve in grades K‒12, we also see others who are high

achievers, as we discussed earlier in this chapter. Similarly, with regard to college enrollment, while far

too many high-achieving, low-income children fail to attend college, many others do attend.

Changing the External Context with CSAs

The external context makes it more or less likely that children enroll in college, and exceptions do not

belie the underlying pattern of disparity. Therefore, it is not surprising that high-achieving, low-income

children are less likely to enroll in college than are high-achieving, high-income children.

In speaking about how institutions can be changed, Knight (1992) believes they can be “by changes

in either the distributional consequences of those rules or the relative bargaining power of the actors”

(p. 145). Similarly, changing the distributional consequences of role expectations and the bargaining

power of minority and low-income children is a way to change role expectations that are in conflict with

normative expectations. Here we are talking about negatively affecting the internal process of forming an

identity by denying children access to institutional resources at key points during this process, which can

lead to a child’s overemphasizing the role that external institutions (e.g., the financial aid system) play in

the decision whether to enroll in college.

In the current system either low-income parents are expected to provide the resources for challenging

these role expectations, or this interruption is to occur through some philanthropic organization. Public

institutions have largely retreated from this responsibility with the rise in college costs, even at state

schools, and the reduction in financial aid based on financial need. The existence of limited private

resources to supplement family capabilities might be part of the reason why we see a smattering of

success (some inexplicably succeed while others inexplicably fail) among low-income children. As we

discuss in more detail in Chapter 5, low-income parents are at a disadvantage for providing the kind

of institutional context needed to counteract disadvantageous role expectations. Further, philanthropic


groups do not provide a comprehensive, systematic strategy for providing all low-income children with

the institutional context they need to overcome disadvantageous role expectations (e.g., they provide

boots to an individual child when the media calls attention to a child who is without boots, but without

adequately addressing the structural factors that led to the child’s lacking a necessity like boots in the

first place). Especially given evidence to suggest that asset effects on educational outcomes can be

realized at relatively low levels of investment, however, there is reason to suspect that public support for

widespread, even universal, children’s savings may succeed where reliance on individual or sporadic efforts

has not. As part of a public commitment to more equal access to higher education, a national CSA

program may provide children with the bargaining power they need to deemphasize disadvantageous

role expectations most of them share in forming their own identity.

CSA programs may place these role expectations back in line with normative expectations by ensuring

that college appears attainable to children throughout their time in school. CSA programs may also

extend this connection to children’s identity as members of a community through community-organized,

third-party contributions to children’s CSA accounts. That is, communities that are able to ensure that

every child has college savings and forms a college-bound identity (as it was called in Chapter 2) builds a

durable community identity around college attendance and success.

Finally, CSAs may provide a way for children to interpret and overcome difficulty. To sustain and

work toward an image of a future self as being college-bound, the context must provide a way to

address obstacles to attending and completing college. Here, the role of school savings is clear, and this

mechanism may provide some particular insights into why school savings are so influential in affecting

persistence to college graduation. Children are more likely to act on their college-bound identity when

resources augment their effort and ability to make the image a reality. Education is not simply about

effort and ability or even a teacher and a student; education is also about the ability of children to access

computers, the Internet, textbooks, cultural events that provide knowledge building, and even social

events in an era when children’s lives are not defined solely by work but by their ability to interact in

social settings.

CSAs Unlock Motivation and Empower Low-Income Students to Succeed

If children’s experiences with schools teach them that their investment of effort and ability is

undervalued relative to other children (both in school and later in the labor market), the decision

to invest in education becomes less likely. While the benefits of education ultimately outweigh the

costs, minority and poor children often find themselves competing in an unfair game. While research

has shown, for example, that Black children have equal or higher levels of motivation for performing

academic work once environmental factors are controlled for (e.g., Graham, 1994), they must expend

more effort to achieve the same results due to differences in how institutions augment their effort. The

educational institution that augments White and high-income children’s use of effort and ability too

often overlooks or devalues minority and poor children’s use of effort and ability in school. This, in turn,

makes success seem less possible (see Chapter 2’s discussion of institutional efficacy).

Research has uncovered ways that having savings unlocks this motivation in low-income children.

When children have a CSA, they may begin to act as though they have a right to attend, and expect

to complete, college. With their financial stake in college comes a power that translates into different


institutional interactions. This sense of power comes from their faith in the rules and regulations

governing capitalist economic markets that protect the individual’s right to own property. As a result,

children may be more inclined to take control over their educational experience when they have

savings. This feeling of power may manifest itself in many different ways. For example, children who

feel empowered are believed to feel more comfortable about asking teachers, counselors, and school

administrators for information about higher education or financial aid. They may also be more likely

to take college-prep classes or the SAT and ACT, or to apply to four-year colleges instead of twoyear

colleges. They may more quickly seek out an adviser when encountering academic challenges, and

may eventually become better consumers of other financial aid options, including student loans. In

this manner, children’s savings programs may well empower children to participate in, negotiate with,

influence, control, and hold accountable the schools they attend.

Key Points

The chasm between shared aspirations of college attainment by children of all income levels and

races and the reality of disparate educational outcomes—the expectations paradox—challenges the

reality of the American dream. There is some evidence that asset accumulation initiatives, including

CSAs, may serve as a counterbalance to these negative expectations and, in turn, have considerable

effects on the educational outcomes of low-income and minority children.

• Even very low levels of asset holding can increase college enrollment rates.

• Asset accumulation may reduce “wilt”—low-income high school graduates who fail

to succeed in college—by aligning children’s talents with their realistic expectations.

• Assets may increase children’s power and ownership in an educational system where

learning is largely seen as a commodity, thus improving the quality of the

educational experience before and during college.

• Asset effects can reshape the educational trajectory of low-income and minority

children, some protection against the rising college costs that have made higher

education seem more aspirational than realistic.


Summary of College Enrollment Findings:

Twenty-seven studies examine the relationship between household assets and children’s college

enrollment/progress (for full review see Appendix C).

• Any College Enrollment/Progress: Twenty out of 27 studies include any college

enrollment or progress as an outcome, including combined two- and four-year




Two studies find that assets are not significant.

Eighteen studies find that some type of asset (e.g., net worth, liquid asset,

homeownership) is a positive significant predictor.

• Three studies out of the 18 that find an asset to be significant have

mixed results. 19


Differences by race:

• Black:

- Net worth is significant.

- Parents’ savings are not significant.

• Black and Hispanic/Latino:

- Financial assets are not related to college enrollment.

- Secured debt is positive and significant.

• White:

- Financial assets (school savings) are significant.

- Net worth is significant.

- Parental savings are not significant.

- No school saving amount is significant.

• Differences by income:


Mixed results for low- to moderate-income children:

• Children’s school savings are significant.

• Net worth is positive and significant in one study and not

significant in another study.

• Parental savings are not significant.

• Two-Year College Enrollment: Two out of 27 studies include two-year college enrollment

as an outcome.

o Parental savings accounts are significant predictors of two-year college enrollment;

however, savings amount is not significant.

o Net worth is significantly associated with two-year enrollment.

• Four-Year College Enrollment: Seven out of 27 studies include four-year college

enrollment as an outcome.

o Two studies find that assets are not significant.

o Five studies find that some type of asset (e.g., net worth, liquid asset, home

ownership) is a positive significant predictor.

• One study out of the 5 find mixed results for the significance of net worth


Differences by race:

• Net worth is not a significant predictor across all racial/

ethnic groups (Whites, Blacks, Asians, or Latinos) when

controlling for academic achievement.


Summary of College Completion Findings:

Seventeen studies examine the relationship between household assets and children’s college completion

(for full review see Appendix D).

• Any College Completion: All 17 studies include any college completion/graduation as an

outcome, including certificate and two- and four-year degree completion. Results are

mixed. 20

o Eight out of 17 studies find that assets (e.g., net worth, liquid asset, financial asset,

home ownership, unsecured debt, secured debt, savings, IDAs, loans) are not


o Sixteen out of 17 studies find that some type of asset (e.g., net worth, liquid asset,

homeownership) is a positive significant predictor.

• Differences by race:

o White:

• Financial and liquid assets are significant.

• School savings and net worth are not significant.

o Black:

• Nonfinancial assets, secured debts, net worth, and liquid

assets are significant.

o Latino:

• Unsecured debts are negative and significant.

• Financial and nonfinancial assets are not significant.

• Differences by income:



• Net worth is positive and significant.

• Children with school savings of more than $1 are more

likely to graduate college than are children with no savings.

• Four-Year College Completion: Two out of 17 studies include four-year college

completion as an outcome.


Both studies find that an asset is a significant, positive predictor of four-year

college completion.

• One study out of the 2 that find an asset to be significant have mixed


o Differences by gender: For females in the 1994 cohort, net worth

and liquid assets are significant.

• Total Years of Schooling: One out of 17 studies includes total years of

schooling post-high school as an outcome.

o Net worth is associated with more years of post-high school formal education.


Chapter 5


by William Elliott, Terri Friedline, and Sally Kakoti


Traditional theories (i.e., economic socialization and financial socialization) that explain children’s

savings attitudes and behaviors suggest that low-income families are unlikely to save because they

have low incomes. Since low-income families have very little money left after meeting their basic

survival needs, the decision to save is much more costly for them than it is for other families.

Traditional savings theory also assumes children and adolescents are unable to save. Instead, we

posit that children and the poor are essentially groups of people differentiated from others by their

inability to access superior institutions. In this context, CSAs facilitate children’s asset accumulation

and prime them for positive experiences with other formal institutions, with effects far beyond

college savings.

A New Understanding of Children as Savers Is Needed

Parents may initiate the financial socialization process (Kourilsky, 1977; Moschis, 1987; Rettig &

Mortenson, 1986), but as children grow, more advanced sources of financial information are needed.

Low-income parents may not always have the requisite financial literacy to transmit this knowledge

to their children. Moreover, from an institutional perspective, families with a legacy of being blocked

from owning assets due to structural failings are less likely to have assets to begin with (e.g., Conley,

1999; Oliver & Shapiro, 1995; Shapiro, 2004). They are also less likely to have connections to financial

institutions that augment their ability to save and accumulate assets. From this perspective, lack of assets

and institutional connections may limit the ability of low-income families to function optimally as

financial socialization agents.

The limited capacity of low-income parents to socialize their children financially suggests the need to

empower children to develop their own saving attitudes and behaviors. There is considerable precedent

for viewing children as economic actors in their own respect; to develop children’s own saving, advertisers

have long understood that children are powerful players in the consumer market. To make this transition

in the world of asset accumulation, though, low-income children and others will need an institution

that starts as early as birth, directs resources to children, and helps them become financially capable as

adults. This suggests another important rationale for CSAs, in addition to their utility as tools to shape

children’s orientation toward their own educational futures and to help finance their higher education.

To the extent to which they can help children learn and practice critical financial management skills and

prepare to operate effectively in the financial mainstream, CSAs may have significant implications for

helping to eliminate the cycle of poverty in America.


We begin by discussing the two predominant theories for understanding children as savers: economic

socialization theory and financial socialization theory. While both contribute to our understanding of

how children develop attitudes and behaviors related to saving, they both fail to recognize the critical

role children play as actors in this process. We follow this by discussing institutional theory, institutional

facilitation, financial capability, and identity-based motivation (IBM) theory. Institutional facilitation

and IBM are discussed in detail in Chapter 2, so we discuss them only briefly here. Part of the rationale

for discussing these four theories is to move toward an overall theoretical framework for understanding

for whom, how, when, where, and why CSA programs affect children’s attitudes and behaviors related

to both their educational and savings outcomes. Institutional facilitation tells us about how institutions

become internalized in the individual to form a college-saver identity and the role that both the

individual and the institution play in forming an identity. IBM theory is used to explain under what

circumstances college-savers will act on that identity once it is formed. 21 Development of the collegesaver

identity may also be an important mechanism through which relatively small-dollar college

savings accounts can shape children’s attitudes and behavior about their educational futures. Institutional

theory explains what characteristics CSAs must have to be effective and, therefore, provides important

guidance for policy and program development. Financial capability explains why to be effective,

financial education must be linked to an account. The first two theories deal with the internal capability

of children and the second two deal with their external capability. The internal and external interact

to shape one another. We end by discussing the potential of CSAs to have postcollege effects on the

financial health of children throughout their lives, which suggests further potential to promote economic

mobility and break intergenerational cycles of poverty.

Two Commonly Used Perspectives for Explaining Children’s Savings

Theoretical research suggests that children’s saving is quite complex and deserves attention (Lunt &

Furnham, 1996; Sonuga-Barke & Webley, 1993). Two theoretical models specifically explain how

children develop saving attitudes and behaviors: economic socialization theory and financial socialization

theory. 22 Findings from both perspectives offer lessons that help inform an understanding of children’s

savings from an institutional facilitation perspective.

Economic Socialization Theory: The Role of Development

Economic psychology emphasizes the role children’s development plays in their saving behavior (see

Table 3). From this perspective, children pass through developmental stages that begin with a nascent

interest in, piecemeal knowledge about, and inconsistent behavior related to money and finances. The

stages culminate with a more sophisticated interest, integrated knowledge, and consistent behavior.

In other words, children’s comprehension of money and finances is initially made up of separate and

incomplete pieces of information that become integrated over time ( Jahoda & France, 1979; Leiser,

1983). Their behaviors increasingly reveal the maturity achieved from passing through the developmental

stages. Interest, knowledge, and behavior milestones measured and achieved at age 5 to 6, 8 to 9, and 11

to 12 detect major shifts in children’s development, which reflect distinct stages.

Children’s socialization into the world of money and finances becomes evident around ages 5 and 6.

At this stage, children can differentiate between coins and other objects and understand that money is

related to purchasing; however, they do not yet grasp the complexities of monetary transactions (Berti


& Bombi 1981a, 1981b; Strauss, 1952). For instance, they may insist on using exact change to purchase

an item or prefer certain coins based on their shape or color. They may even believe that saving in a bank

is consistent with giving away or losing their money ( Jahoda & France, 1979; Ng, 1983; Sonuga-Barke

& Webley, 1993). Eventually, as children mature, their comprehension of money and finances becomes

integrated and they behave accordingly. As a result, children understand complex monetary concepts

and can carry out advanced saving behaviors by approximately age 12. For instance, children closer to

and older than age 12 can consistently use savings accounts to regulate and invest their money, whereas

children younger than age 12 conceptualize banks as a place for storage (Ng, 1983, 1985; Sonuga-Barke

& Webley, 1993). From this perspective, children’s saving behavior becomes increasingly adept over the

course of their development.

Studies from economic psychology focus specifically on children’s development and saving (see Appendix

E). 23 These studies examine children’s saving by involving them in qualitative interviews, observations,

questionnaires, and play scenarios between the approximate ages of 5 through 12 (Otto, Schots,

Westerman, & Webley, 2006; Sonuga-Barke & Webley, 1993; Ward, Wackman, & Wartella, 1977;

Webley et al., 1991; Webley & Nyhus, 2006; Webley & Plaisier, 1998). Otto et al. (2006) conducted a

series of studies that illustrate when children pass through developmental stages to become consistent

and sophisticated savers. In one study, Otto and colleagues (2006) examined saving behavior in game

scenarios for children ages 6, 9, and 12. Children competed the game successfully when they emerged

with enough tokens to purchase a toy. In all, 62% successfully completed the game and purchased the

toy. Children’s saving behaviors were observed throughout the game, including how they navigated

temptations like deciding whether to make purchases in the candy store. The most common strategies

children use at age 6 were saving by delaying their spending and a combination of saving and spending.

Some children at this age made no attempts to save their tokens. All children at age 9 displayed some

sort of strategy, most often including saving until reaching their goal. Children at age 12 consistently

demonstrated strategies such as a combination of saving and spending and saving by delaying their

spending. The strategies children at age 12 used are considered sophisticated because they require a

greater degree of foresight and self-regulation. 24

Research suggests that children are able to move through developmental stages related to saving more

quickly when they have early experiences with money management (Ng, 1983, 1985). For instance, the

I Can Save program included treatment and comparison groups of children in kindergarten and first

grade who were approximately ages 5 and 6 (Elliott, Sherraden, et al., 2010; Sherraden, Johnson, Elliott,

Porterfield, & Rainford, 2007), which is consistent with the initial developmental stage identified by

economic psychologists (Sonuga-Barke & Webley, 1993). Children in the I Can Save treatment group

received savings accounts, incentives to save, and financial education. When talking about I Can Save,

comments from children in kindergarten and first grade revealed partial understandings about money

and finances: “they told us not to spend too much money or you might end up owing a lot, like you may

just have two pennies” (Sherraden, Johnson, et al., 2007, p. 304). Despite this partial understanding,

children saved a mean of $8 per month in their I Can Save accounts over two-years with the help of

their parents’ money (or $21.37 including initial deposits and match incentives). Even this small amount,

saved consistently, would result in over $1,200 saved (excluding interest) by high school graduation. If

given early opportunities to save, it appears that children may use savings accounts as a saving strategy

sooner. This suggests that children may develop more sophisticated financial knowledge, and their use of

more advanced financial behaviors may be accelerated through opportunities to practice their learning.


Financial Socialization Theory: The Role of the Family

For children, saving is almost always connected to a larger social unit or family, and the financial

socialization perspective focuses on the role of the family in teaching children about money and finances

(Lunt & Furnham, 1996). Financial socialization builds on the commonly held belief that the family

is one of the primary institutions in which child development takes place (e.g., Bronfenbrenner, 1979).

According to Ozmete (2009), socialization is “the process whereby a person learns the value system,

norms and required behavior patterns of a given society in which he belongs” (p. 373). Families facilitate

their children’s socialization by offering experiences like giving allowances, opening savings accounts, or

teaching them the importance of saving (Kim, LaTaillade, & Kim, 2011; Mandell, 2005).

Children experience socialization indirectly, through observing their parents’ behaviors, and directly,

through conversations and practical experiences (Bowen, 2002; John, 1999; Moschis, 1987). Indirectly,

parental guidance and self-reflection help children develop skills and strategies such as developing a

future time orientation and a habit of saving (Sonuga-Barke & Webley, 1993; Trommsdorff, 1983;

Webley et al., 1991). Research suggests that socialization endeavors may be more successful when parents

display greater degrees of warmth and involvement with their children (Weiss & Schwarz, 1996). In

turn, greater displays of warmth and involvement may be associated with children’s future orientation

(Ashby et al., 2011)—a variable commonly linked with saving (Friedline, Elliott, & Nam, 2011; Webley

& Nyhus, 2006). Parents or other family members often provide socialization experiences directly by

giving an allowance contingent upon chores, supporting children in opening savings accounts, and

frequently providing the money for saving (Ashby, et al., 2011; Furnham & Thomas, 1984; Sonuga-Barke

& Webley 1993). Given this, at least in part, children’s saving is linked to the nature of relationships in

the family (Webley et al., 1991; Sonuga-Barke & Webley, 1993). Some evidence we discuss later in this

chapter suggests that these interactions may be constrained in low-income families, given other stressors

parents experience.

Families that socialize children into the world of money and finances from a young age provide a

context for children’s development. Children pass through distinct developmental stages between

the ages 5 and 12, in that their understanding about saving and ability to save becomes increasingly

adept and sophisticated. From a developmental perspective, children’s interest in and knowledge about

saving emerges at age 5, yet their ability to save is still forming. Their interest, knowledge, and behavior

have normalized by age 8 to 9; however, they still may not save with precision or regularity. By age 12,

children’s interest, knowledge, and behavior have become integrated and they can save successfully. The

role of families may initially be fundamental for teaching children about saving, opening accounts, and

making trips to the bank, but this role becomes more peripheral as children reach age 11 or 12 (see

Appendix F).

Moreover, from a financial socialization perspective, when and how parents extend socialization

experiences to children may relate to children’s savings throughout their lives. In other words, children’s

initial socialization may be associated with their saving across the life course primarily based on the

success or failure of parents as socializers (Grinstein-Weiss, Spader, Yeo, Taylor, & Freeze, 2011). If

parents have encouraged good saving habits, modeled a future-oriented approach to financial decisions,

and provided opportunities to save, children may continue to save. If parents have not done this or

their attempts have been unsuccessful, poor saving habits may continue into adulthood. In many ways,


financial socialization within the family may establish a pattern on which children build throughout their

lifetimes, which may be one of the ways low-income families transmit patterns of disadvantage.

A contextual explanation for financial socialization considers that family socioeconomic background

may influence children’s socialization experiences and the development of saving behaviors (Ashby

et al., 2011; John, 1999; Jorgensen & Salva, 2010; Shim, Barber, Card, Xiao, & Serido, 2010). All

existing studies on the relationship between financial socialization and children’s saving consider family

socioeconomic factors (see Appendix F), such as household income, parents’ education, and employment.

This contextual explanation has less to do with families’ willingness to encourage good savings habits

and provide their children with socialization experiences and more to do with their financial capacity

to do so. It might be easy to mistake children’s lack of saving opportunities as a result of their parents’

irresponsibility or shortsightedness. However, from a contextual perspective, one should not associate

lack of saving opportunities with parents’ irresponsibility, particularly in families of limited financial

means. Families that lack financial resources often have limited connections to the financial marketplace

(Bricker, Kennickell, Moore, & Sabelhaus, 2012; Grinstein-Weiss et al., 2011), thus limiting their ability

to model saving behaviors or to establish savings accounts for their children.

Assessing the Institutional Context of Low-Income Families without CSAs

This section provides an example of what the institutional context may look like for average low-income

children and their families when they do not have access to programs like CSAs and the financial

education that comes along with that access, using the seven institutional mechanisms outlined in the

institutional theory of saving (see Appendix G).


Access refers to the ability of children to connect with formal banking institutions (e.g., a combination

of availability, acquisition, and applicability). Of all groups, children are the most vulnerable to exclusion

from the formal banking system, especially low-income and minority children. Under the current

system, children rely primarily on their parents to provide them with connections to the formal banking

system, because they do not have the legal right to open an account without adult approval (Kalyanwala

& Sebstad, 2006). Further, they lack both the mobility to get to the bank on their own and a regular

income, which limits children’s access to banks.

Even given supportive families, banks are often not located where low-income parents and children

live (Avery, Bostic, Calem, & Canner, 1997), and low-income parents may be less skilled in navigating

banking options because of their history of constrained access to financial institutions. These

factors reduce the ability of low-income parents to connect children to the formal banking system.

Compounding this lack of availability is the fact that banks have little financial incentive to help increase

access among low-income and minority children due to the disproportionately high costs associated with

banking such children (FAO, 2002).

Research suggests that low-income children fail to gain access to the formal banking system at the same

rate as high-income children. With respect to access to formal banking systems, fewer children between

ages 12 and 15 from low-income and racial minority families have savings accounts than do their


counterparts from high-income and racial majority families. There is a 31 percentage point gap in savings

account ownership between children from low- and high-income families and a 29 percentage point gap

between children from Black and White families (see Figure 10).

Figure 10. Percentages of Children’s Savings Account Ownership by Income and Race (Ages 12 to 15)

Low-Income High-Income Black White

Savings Account 38% 69% 32% 61%

Sources. Friedline, 2012; Friedline, Elliott, & Nam, 2012.

This pattern remains in young adulthood between ages 17 and 23. While all groups experience an

increase in account ownership between childhood and young adulthood, percentage point gaps actually

expand to 37 by income and 31 by race (see Figure 8). In other words, the gap in account ownership

by income expands by six percentage points, and the gap by race expands by two percentage points;

disadvantaged children make slower advances toward this financial milestone than do their advantaged

peers. One might expect gaps to decrease between childhood and young adulthood as opportunities

for employment and income increase. However, expanding disparities perhaps indicates that there are

compounding effects of structural failings across the life course.

Figure 11. Percentages of Young Adults’ Savings Account Ownership by Income (Ages 18 to 22) and Race

(17 to 23)

Low-Income High-Income Black White

Savings Account 54% 91% 60% 91%

Sources. Elliott, 2012; Friedline & Elliott, 2011.


TABLE 3. Changes in Children’s Attitudes and Behaviors During Different Stages of Development, the Role of

the Family, and CSAs

Cognitive Capacity for Saving at

Different Stages of Development

Formation: Ages 5 to 6

and earlier

• Developing a basic knowledge

of money and finances

• Believing saving is socially


• Emerging saving strategies

The Role of the Family

The Role of Institutions (CSAs)

as Augmenter and Sometimes


Separated Fundamental Institution-


• Teaching basic information

about saving, banks

• Providing socialization

experiences and experiential

learning like counting money

• Modeling saving behaviors

• Providing money to save

• Providing transportation to

the bank, access to formal


• Encouraging deposits into

bank account

• Automatically opening


• Providing initial deposits

• Introducing institutional

match incentives

• Making salient the connection

between CSAs and education

• Providing regular, easy access

to CSAs for deposits

• Identifying short- and longterm

saving goals

• Explaining account restrictions

• Teaching basic financial


Normalization: Ages 8 to 9

• Integrating knowledge of

money and finances

• Developing preference for


• Developing saving strategies

All of the above, in addition

to the following:

• Teaching more advanced

information about saving,


• Providing socialization

experiences like talking

about short- and long-term

saving goals

All of the above, in addition

to the following:

• Incorporating basic games

that teach financial education

concepts and encourage saving

• Offering prizes for saving

• Sending reminders to save

Performance: Ages 11 to 12

and beyond

• Integrated knowledge of

money and finances

• Developed and increasingly

advanced saving strategies

• Developing advanced

knowledge of money and

finances, including

interest rates and pensions


All of the above, in addition

to the following:

• Providing socialization

experiences like household

discussions of finances,

budgeting, and long-term

saving goals

• Encouraging paid work

through chores or part-time



All of the above, in addition

to the following:

• Teaching advanced financial


• Promoting investment,

diversification of asset





Information refers to knowledge about policy, service, or product, as well as knowledge that may

contribute to successful saving performance. Beverly et al. (2008) write, “For example, to successfully

participate in a traditional IRA, a person must know that an IRA is available and that she is eligible. She

must also know how to choose an appropriate investment, how to make contributions, how to receive

the tax deduction, and, later, how to make withdrawals” (pp. 110). Families are considered to be children’s

main source of information on financial issues. However, research shows that low-income families have

less financial knowledge (Loibl & Scharff, 2010; Lusardi, Mitchell, & Curto, 2010; Zhan, Anderson,

& Scott, 2006) and fewer discussions about family financial matters (Bowman, 2011; Sherraden &

McBride, 2010) than do middle- and high-income families. Adults in general perform poorly on

financial education tests (Lusardi & Mitchell, 2007), which does not bode well for the quality or

accuracy of information they pass on to their children. To the extent to which opportunities to practice

financial knowledge also increases these capabilities, low-income parents’ reduced access to financial

institutions and limited means with which to save can result in less accumulated information about

financial literacy as well.


Incentives refer to financial rates of return, as well as nonfinancial “payoffs” for participation (Sherraden

& Barr, 2005). Asset researchers commonly define institutional incentives as initial deposits for opening

accounts and match contributions. Evidence reveals that these incentives are related to saving (Duflo,

Gale, Liebman, Orszag, & Saez, 2006; Mason, Nam, Clancy, Kim, & Loke, 2010; Poterba, Venti, &

Wise, 1996; Wheeler-Brooks & Scanlon, 2009). For example, results from a study that examined tax

refunds of 13,904 low- and moderate-income H&R Block tax filers found that 17% of those who were

offered a 50% match enrolled in a savings initiative and contributed $1,310; 10% of those offered the

20% match enrolled and contributed $1,280; and 3% of the control group enrolled and contributed $860

(Duflo et al., 2006). The relationship between incentives and saving may also hold true for children.

Children from low-income families who participated in savings programs reported that initial deposits

and match contributions were attractive and incentivized their saving (Scanlon, Buford, & Dawn, 2009;

Wheeler-Brooks & Scanlon, 2009). Unfortunately, research shows that low-income families are less

likely to use traditional banking and more likely to use alternative forms of banking, such as checkcashing

institutions or payday loans (Barr, 2004; Lusardi, Schneider, & Tufano, 2011; Rhine, Greene,

& Toussaint-Comeau, 2006). These alternative forms of banking are actually punitive, because they

offer disincentives to save. As a result, many low-income parents may not be able to provide children

with the connections they need to receive the proper incentives required to promote savings. Over time,

experiences with institutions that provide disincentives instead of positive rewards for savings behaviors

may result in parents who do not encourage their children to save.


Facilitation refers to any form of assistance in saving. In the case of children, an important aspect

of facilitation is whether parents encourage them to open a bank account. Children whose parents

encouraged them to save using a bank account save more than others (Webley & Nyhus, 2006).

Descriptive data tell us, however, that low-income children (38%) are far less likely to have a savings


account than are higher-income children (69%) (Friedline, 2012). In addition to encouraging children to

save in a bank account, families can facilitate saving by giving children an allowance, which also increases

the likelihood of saving (Furnham, 1999). However, findings are mixed regarding whether disparities in

providing an allowance vary by income. Mortimer, Dennehy, Lee, and Finch (1994) find that income

is associated with whether children receive an allowance in the first place. In a sample of high-ability

children, Miller and Yung (1990) find no evidence of differences in receipt of allowance by income, but

they do find evidence that children living with mothers with higher levels of education were more likely

to receive an allowance than those living with mothers with lower levels of education. Overall, findings

seem to suggest that low-income children may be less likely to receive an allowance than are highincome



Expectations are embodied in institutional features such as social pressure of staff and peers (Loibl et

al., 2010; Loibl & Scharff, 2010). Expectations refer to the rules, norms, or goals that govern saving

and represent intrinsic or extrinsic suggestions about desired saving (Beverly et al., 2008; Sherraden &

McBride, 2010). However, low-income families are more likely to distrust the formal banking system

than are middle- or upper-income families (Barr & Blank, 2009; Retsinas & Belsky, 2005) and tend

to pass these perceptions and practices onto their children (Grinstein-Weiss et al., 2011; John, 1999;

Moschis, 1987; Shim et al., 2010; Shim, Xiao, Barber, & Lyons, 2009). In one study of the unbanked

(who are disproportionately from lower-income households and racial/ethnic minority groups), distrust

in financial institutions is the fourth most commonly reported reason for not having an account, after

lack of funds, poor credit history, and high fees (Lyons & Scherpf, 2004). When children and their

families save money in a formal banking institution, the meta-message asserts, “We save” for the things

we need and want.


From an institutional perspective, putting money into savings accounts should be easy (facilitation),

while restrictions should prevent frequent withdrawals. Sherraden and Barr (2005) point out two

main types of restrictions: those on access and those on use. Saving at a formal bank is a key way that

people restrict their access to their money (Sherraden & Barr, 2005). For example, banks typically limit

savings account withdrawals to six times per month without penalties (Chan, 2011), meaning that these

accounts are intended to be used for accumulating savings and frequent withdrawals are restricted and

discouraged. As low-income children are less likely to have a bank account (e.g., Friedline, 2012), one

can conclude that they are also less likely to benefit from the restrictions banks provide. Over time, the

lack of restrictions may result in less asset accumulation and may also make children’s savings more

vulnerable to encroachment by others, particularly given the more frequent financial crises that occur

within low-income households.


Security refers to having a safe place to hold money. Low-income families are far less likely to connect

their children to a federally insured bank than are those with high incomes (Friedline, 2012). Federally

insured banks provide people with safety for their deposits, currently up to $250,000. Having money in


a bank also protects savers from such basic risks as theft and natural disasters, protections that savings at

home lack. Not having a bank account can be particularly harmful to low-income families and children.

Research shows that they are more likely to have their savings lost due to family and friends if the

money is saved in a house or other unsecure location (Chiteji & Hamilton, 2002). For example, the New

York Times, Huffington Post, and other news outlets recently covered the story of a 12-year-old New

Jersey boy who stashed his $300 life savings in an old computer in an attempt to hide the money from

his sister, only to find that his mother recycled the computer while he was at Boy Scout camp (Barron,

2012). A few years ago, news outlets reported on a young woman from Tel Aviv who wanted to surprise

her mother by purchasing her a new mattress, only to find out that when she threw out the old mattress,

she also threw out the $1 million life savings hidden inside (Goldiner, 2009). 25

CSAs Can Improve the Institutional Context for Saving

From an institutional perspective, as articulated here, when the family is the primary institution

connecting children with the adult economy, children walk into the pattern that the family has

established. Based on this framework, we suggest that low-income children start off in an unfavorable

position in regard to their families’ institutional capacity as financial socializers. This all but assures that

low-income and minority children will not save as much as their high-income, White counterparts.

However, CSAs may be able to help level the playing field when parents lack the financial knowledge

and institutional connection required to be effective socializers.

CSAs have been proposed as a potentially novel and promising savings program meant to promote lowincome

children’s savings and asset accumulation (Boshara, 2003; Goldberg, 2005; Sherraden, 1991).

According to Loke and Sherraden (2009), an advantage of asset-based policies targeting children is that

they “may have a multiplier effect by engaging the larger family in the asset-accumulation process. In

addition to children saving and learning about saving, members of the extended family may learn from

this process, and parental expectations for children may also be positively affected” (p. 119). Simply put,

CSAs provide children and their families with a strategy for how to pay for college and give them the

institutional support needed to carry it out.

This institutional perspective has implications for the design of CSAs: they should be opened

automatically for children at an early age, paired with financial education; facilitated by features like

direct deposit and incentivized matching contributions; identify expected savings goals; and include

penalties for making withdrawals for unapproved expenses. 26 Many of the successful policy structures

that higher-income individuals use to accumulate assets today (e.g., 401[k] or 529 plans) use at least

some of these mechanisms to significant effect.

CSAs May Address Historical Wealth Inequalities

In the previous section we discussed the institutional context without a CSA program. In this section

we discuss how the institutional context of low-income children and their families can be altered by

introducing CSAs. CSAs are not meant to replace families or formal banking institutions; instead, they

are meant to empower low-income families and their children to negotiate with, influence, control, and

hold accountable formal financial institutions.


As we discussed in Chapter 4, a part of what CSAs are meant to do is change the distributional

consequences of the saving rules for low-income children and their families and change their bargaining

power with financial institutions. Many CSAs provide low-income families and their children with

additional resources to save through initial deposits, incentives, and matching contributions. These

features make the opportunity costs for low-income individuals—who have less money to spend on basic

necessities—appear worth making because of the return they are able to get on saving. For example, a

well-known CSA program—the Saving for Education, Entrepreneurship, and Downpayment (SEED)

national research demonstration that operated from 2003 through 2007—incorporated match incentives,

financial education, and withdrawal restrictions (Sherraden & Stevens, 2010). In SEED, low-income

children ages birth to 23 and their parents were invited to open savings accounts at 12 locations


A key question for SEED was whether the institutional mechanisms incorporated into CSAs could

facilitate saving and encourage asset accumulation for children and their parents (Mason et al., 2010).

Accounts in SEED came with saving incentives, including initial deposits of up to $1,000, additional

deposits for milestones like having a birthday or attending financial education workshops of up to

$1,000, and dollar-for-dollar savings match incentives of up to $3,000 (Mason et al., 2010). SEED

allowed child participants to withdraw their savings for asset purchases, but generally the accounts

were geared toward long-term investments, such as a college education. Incentives were included in the

project to encourage participants to save more. After about five years, the mean amount participating

low-income families saved was $1,518, a strong endorsement of CSAs as a vehicle to promote asset

accumulation by the poor.

The SEED for Oklahoma Kids (SEED OK) research experiment expanded on findings from the SEED

research demonstration by randomly assigning savings accounts to newborns in Oklahoma in 2007

(Beverly, Kim, Sherraden, Nam, & Clancy, 2012; Zager, Kim, Nam, Clancy, & Sherraden, 2010). In

SEED OK, accounts for newborns and their parents in the treatment group were automatically opened

in 529 college savings accounts with an initial $1,000 deposit. In addition, those in the treatment group

were encouraged to open another 529 account with an initial $100 deposit; income-eligible families

could qualify for match contributions. Treatment group participants could decline the account that was

automatically opened for them, but only one of the 1,340 eligible participants did so (Nam et al., 2013).

CSAs Transform the Institutional Context of Low-Income Families

In a context where formal banking institutions exist and CSAs are absent, children living in lowincome

families grow up experiencing an institutional context that affords them few opportunities to

access savings accounts and may even offer disincentives to save. Moreover, the cognitive expectations

these children develop regarding saving revolve around external institutions, rather than their internal

capability. Given this, we suggest that the formal banking system is ill-equipped to address the historical

wealth inequality that exists in America (e.g., Oliver & Shapiro, 1995; Shapiro, 2004). Further, if assets

are an important part of moving people out of poverty, this system is also ill-equipped to reverse the

cycle of poverty in America. Therefore, we suggest that institutional structures that allow minority, lowincome,

and even children to join the mainstream market are needed.

CSAs create an institutional context responsive to the challenges facing and the efforts of low-income


children. As identified in Table 4, some CSAs automatically open a savings account for low-income

children and provide convenient ways for them to interact with their account, such as through a

school-based program. CSAs encourage and incentivize low-income children’s saving by eliminating

required minimum balances and providing them with money to save through, for example, matches

and additional deposits on birthdays and the like. Moreover, most CSAs include financial education

programs that give children and families experience in managing a long-term investment. Children

who can connect financial education with financial products also score higher when tested on financial

knowledge (Beutler & Dickson, 2008; Grody, Grody, Kromann, & Sutliff, 2008; Johnson & Sherraden,

2007; Webley, Burgoyne, Lea, & Young, 2001). According to Leiser and Ganin (1996), higher levels

of financial capability in children may positively influence their long-term economic beliefs, attitudes,

values, and financial knowledge and behavior. By saving for education, for example, children may learn

more about the formal workings of the economy, including banking, interest, and developing and

sticking to a budget (e.g., Elliott, Sherraden et al., 2010), even as they are developing a future orientation

and financial and educational attitudes consistent with long-term success.

Table 4. The Institutional Context of Formal Banking Institutions for Low-Income Families and Their Children





Formal Banking




Ability to

connect with

formal banking


Open savings

accounts at formal

banking institutions

less frequently

Use banking

institutions that are

most convenient

or geographically

accessible, often

alternatives like

payday lenders

Receive limited

opportunities to open

accounts, given their

families’ less frequent

banked status

Require locating and

traveling to banking

institution on their


Open accounts at

the initiation and

approval of an adult


Develop inhouse


for customers

to interact with


Automatically and

universally open

savings account in

child’s own name

Receive opportunities

to interact with the


Make the account

available by offering it

as a school program




about policies,

services, or

products that

contributes to


Lack financial

knowledge about

policies, services, or

products related to


Lack experience

applying financial

knowledge to saving

Receive limited

financial knowledge

from families about

saving and banking


Receive limited

opportunities to

apply financial

knowledge to saving

of their own

Provide no or

very limited

opportunities for

financial education

combined with

saving in account

Develop financial

capability through

a combination of

financial education via

classroom instruction,

online activities, and

other workshops and

by applying education

to savings accounts



Financial and


rates of return

for saving


Any form of

assistance that

makes saving



Intrinsic and

extrinsic norms

and pressures

about desired




placed on

control over

savings in the



A safe place to

hold savings


Families, cont.

Receive disincentives

when there is

insufficient money

to maintain initial

deposits, minimum

balances, etc.

Earn no interest on

small-dollar savings

Subject to penalties if

no income to save

Use direct payroll

deposit if incomeand


Struggle to make

regular, consistent



pressures to spend

and consume for

competing, daily


Access savings

whenever needed for

any expense

Subject to penalties

for too frequent


Struggle to

accumulate savings

Develop distrust

of formal banking



Children, cont.

Lack their own

money to save

Receive disincentives

when there is

insufficient money

to maintain initial

deposits, minimum

balances, etc.

Earn no interest on

small-dollar savings

Subject to penalties

if no income to save

Restricted from

using direct payroll

deposit given limited

opportunities to earn

regular paychecks

Struggle to make

regular, consistent


Experience spending

and consuming for

competing, daily

needs rather than


Access savings

whenever needed for

any expense

Subject to penalties

for too frequent


Struggle to

accumulate savings

Develop ambivalence

toward and

distrust of banking


Experience savings

as unprotected from

families’ withdrawals

The Internal Capability of Children

for expenses and


Formal Banking

Institutions, cont.

Require high initial

deposit ($300 on

average) to open


Give average rate

of .01% annual

interest on savings

Charge regular

maintenance fees to

maintain account

Levy penalties if no

income to save

Provide direct

payroll deposit

if income- and


Require minimum

balance thresholds

(i.e., minimum

monthly balance of


Close account after

extended period of


Permit savings

in the account to

be used for any

expense or purpose

Permit unrestricted

withdrawals from

savings at any time

for any expense

Transfer or close

account after too

many withdrawals

Federally insure

savings in the


Name an adult

custodian as coowner

on the


CSAs, cont.

Receive initial deposit

at account opening

Earn matches on

deposits (i.e., interest

rate of ≥ 50%)

Receive rewards for

achieving milestones

Provide income

to save through


Provide opportunities

for deposits that

make saving easy for


Encourage regular

deposits through

prespecified amount

thresholds (i.e., $10

per month)


development of

expectations for the


Dedicate savings

in the account for

education, home

ownership, smallbusiness

start-up, or

retirement expenses

Limit withdrawals for

early and unapproved


Permit withdrawals

after age 18 for

preapproved expenses

Federally insure

savings in the


Name child as owner

on the account, along

with a third-party



Chapter 2 focused on the internal mechanisms related to children’s engagement in school and how

CSAs, a type of institution, may affect this process, so we only discuss key points not made in Chapter 2.

The Institutional Facilitation Process: Children as Agents

An institutional facilitation model contributes in several important ways to our understanding of how

children save that may have implications for how CSA programs are designed. Unlike the economic

psychology and financial socialization models of children’s savings, the institutional facilitation model

emphasizes the role of children as critical actors in the development of their own saving-related attitudes

and behaviors. An institutional facilitation model builds on the institutional model, used by asset theorists

and described in the previous section, by providing an explicit explanation of the role of the individual in

the saving process. Further, it helps explain how external institutions are integrated into the self. 27

In Chapter 2 we introduced the theory of institutional facilitation. From an institutional facilitation

perspective, children are critical agents in their own development, and institutions can augment family

capacity or be a substitute for parents when they are incapable of fulfilling their role as financial

socializers and intermediaries to the formal banking sector. With respect to paying for college, being

understood as an agent might be more important for low-income children than for high-income

children, since the former tend to have more decision-making power over how to pay for college than

do their high-income counterparts (Sallie Mae, 2012). Among low-income students, 33% of their

parents decide how to pay for college, compared to 60% of high-income parents (Sallie Mae, 2012).

Without CSAs or other resources for college, low-income children struggle with this decision-making.

Their parents contribute far less to paying for college than do their high-income counterparts (Elliott &

Friedline, 2013; Sallie Mae, 2012) and are less able to answer their children’s finance-related questions or

provide accurate college cost information (Horn et al., 2003).

Children make both self-efficacy and institutional efficacy judgments (see Chapter 2) about their ability

to pay for college. 28 Because all children by definition are attending college for the first time, they

must look to models as a way to attain initial information about college and how to pay for it. From an

institutional facilitation perspective, doubt requires making an efficacy judgment (i.e., regarding whether

an individual has the ambition and ability to accomplish something). Where there is no doubt about the

outcome of one’s performance, there is no longer a need to make an efficacy judgment. However, in the

case of college attendance and other uncertain situations, disadvantaged students may need support in

crafting these efficacy judgments. CSAs provide the information and institutional support needed for

children to form efficacy judgments and, ultimately, be successful.

Moschis (1987) finds that by the time children reach school age, the foundation of their values, beliefs,

attitudes, expectations, efficacy, and motivation about money have already formed. Early experiences with

financial failures and lack of positive role modeling help shape the values, beliefs, attitudes, expectations,

efficacy, and motivation about money of many low-income children. However, the reality is that many

low-income and minority children receive situational cues that reinforce the notion that they are illequipped

to make good financial decisions.

These early experiences may only predispose children toward developing low financial efficacy beliefs;

children have not yet begun to internalize these beliefs. Around fourth grade, they begin to understand


that performance is determined—at least in part—by institutions and not just by their own effort and

ability. In this sense, institutions can also take on the role as modeler and provide children with an

important part of the initial information they need to begin to assess their own financial efficacy more

accurately. Including institutional information may limit the range of behaviors children perceive as

available to them if institutions do not respond predictably to their investment of effort and ability (e.g.,

Bandura, 1997; Schunk & Pajares, 2002).

From an institutional perspective, children repeat the process of making judgments and performing

a pattern of behavior until they feel they can accurately predict their ability to bring about future

outcomes, such as paying for college. As discussed in Chapter 2, when children come to believe that a

pattern of behavior has predictable results, they form and internalize cognitive expectations as part of

an identity and come to see or not see themselves as college-savers. So, when financial institutions are

responsive to children’s effort and ability (i.e., provide children with the resources they need), children are

unlikely even to notice the facilitation role that institutions play in saving; they are simply likely to think

of themselves as savers. When financial institutions properly function, they can be taken for granted. To

illustrate, institutions are like breathing: they are taken for granted when they are functioning properly

but are an essential part of performing any task successfully. However, if breathing stops or is interrupted,

children are forced to think about the essential nature of breathing for their survival (such as in the case

of an asthma attack). Similarly, children may not notice the facilitating role of institutions unless it is

interrupted or is not present in their lives. As we have already noted, this is disproportionately the case in

low-income and minority children’s lives.

The cognitive expectation process argues for CSA programs that start as early as birth. These help

children become predisposed to forming positive expectations about saving in financial institutions and

about their ability to save. In the case of low-income and minority children, the account side of the

ledger might be able to address this reality completely when it comes to learning financial concepts or

participating fully in CSA programs. CSA accounts provide low-income children with an introduction

to the mainstream banking system, maybe for the first time, in a somewhat controlled environment

where success is more likely than failure. For example, because their money is matched, they are more

likely to accumulate savings than they would be if they had an account in a mainstream bank. Even if

they do not accumulate a large sum, they can still learn the basic concept that banks help money grow.

Further, mechanisms like restrictions help protect their money from being spent.

If a CSA program is started later in the child’s life, automatic enrollment may be even more important.

Automatic enrollment interrupts the normal cognitive response to saving the child has formed, if that

response has been to disengage. Once in a CSA program, children might be put in a position to have

experiences with saving that contradict their previous experiences. The CSA program might provide the

child with an opportunity to make new efficacy judgments, with different experiences, which might lead

to a new set of behaviors being adopted as part of a new identity—an identity as a saver.

Trust and CSAs

A key principle of institutional facilitation is that a sense of efficacy is not always (perhaps even seldom)

achieved through direct control by the individual, nor can it be. As Sen (1999) writes, individuals

typically do not have direct control: “In modern society, given the complex nature of social organization,


it is often very hard, if not impossible, to have a system that gives each person all the levers of control

over her own life. But the fact that others might exercise control does not imply that there is no further

issue regarding the freedom of the person; it does make a difference how the controls are, in fact,

exercised” (p. 65).

External resources become a part of the self when we exercise power and control over them (Belk,

1988). When children are forced to rely on third parties, such as parents or institutions, they must trust

them so they will be integrated into the self, augmenting what the self can do. In the case of parents, a

problem for low-income children is that, quite apart from the warmth of their relationships with their

parents, they have not learned to trust their parents when it comes to financial matters. Therefore, CSAs

should be under the control of the child, establishing a direct, trusting relationship with formal banking


Conclusion: Saving as a Child and Postcollege Effects

Research has begun to examine how children can achieve positive financial outcomes beyond the college

years. We see this as a key body of emerging research in need of much more investigation (see Appendix

H; also see the summary of this research at the end of this chapter). This research indicates that children

who have savings may be more likely to build assets as adults. In other words, by having savings, children

may develop a high level of financial capability that carries over into adulthood. Thus, children who

save while growing up and continue to save and make healthy financial choices, will experience more

positive financial outcomes for themselves and their families. They develop relationships with financial

institutions, and they experience these institutions as helping them to achieve their financial goals.

They build the knowledge and skills needed to navigate economic decisions, and they access financial

arenas with the potential to aid their economic mobility. It appears that having savings as a child

may not only improve their prospects for attending and completing college, which in turn is widely

believed to be related to higher earnings over the course of one’s life—it may also improve a child’s

ability to accumulate assets as an adult. This has implications not only for asset accumulation, but also

the transmission of poverty: savings attitudes and practices display high levels of inequality by race and

income. Asset accumulation not only could be a means of ensuring that children become financially selfsufficient

adults, but also that today’s generation of low-income and minority children are better off than

their parents.


Key Points

Traditional theories of savings would lead observers to believe that low-income children are

unlikely to accumulate any assets, given the limited incomes available for saving and their parents’

limited ability to transmit adequate financial knowledge and skills. However, empirical evidence

and institutional theory suggest that low-income children can, indeed, save and that crafting

structures that can facilitate their saving, including children’s savings accounts, may help savings to

serve as a path to economic mobility for these disadvantaged children.

• Traditional children’s savings theory views low-income children as unable to

save because their parents lack wealth and financial knowledge, presumed to be

prerequisites for children’s asset accumulation.

• Economic socialization theory emphasizes the role of child development in

children’s progression toward more sophisticated financial understanding. Studies

in this vein have found that even very young children are capable of understanding

the connection between saving in CSA structures and the likelihood of achieving

future education and life goals.

• Financial socialization theory emphasizes the role of families in shaping children’s

financial knowledge and behavior. Thus, because low-income parents have fewer

opportunities to model asset accumulation, they may be less capable of transmitting

this knowledge and behavior to their children, despite a desire to do so.

• Viewing children as economic actors in their own respect (as has been the case in

advertising) suggests recommended features for CSAs: automatic enrollment,

starting as early as birth; matching contributions; clear savings goals; restrictions on

withdrawals for noneducation-related purchases; and financial education.

• Understanding how building assets may shape children as financial actors reveals

another advantage to policies that provide opportunities for saving over those

advancing reliance on student debt.


Summary of Postcollege Financial Health Findings:

Six studies examine the relationship between household assets and children’s financial health. Key

findings are summarized (for full review see Appendix H):

• Asset Account Ownership: Five out of 6 studies include any type of children’s savings

or other asset account as an outcome, including savings, checking, stock or bond, money

market, mutual fund, and retirement accounts; credit cards; certificates of deposit; and

total account ownership.

o All 5 studies find that a household asset is a significant predictor of any asset

account ownership for children, though findings vary based on the type of savings

or asset account.

Number of Studies

Including Children’s

Savings or Other Asset

Account Ownership as an


Number of Studies

Finding Household

Asset Significant in Any


Savings account 5 3

Checking account 1 0

Credit card 1 0

Certificate of deposit 1 0

Stock or bond account 2 2

Money market account 1 1

Mutual fund account 1 1

Retirement account 1 1

Total account ownership 2 1

• One study out of the 5 that find a household asset to be significant has

mixed results.

o Differences by race:

• Net worth and parents’ savings account for child are not

significant for Black children.

• Nonfinancial Asset Ownership: One out of 6 studies includes any type of children’s

nonfinancial asset ownership as an outcome, including vehicle and home ownership.

o Household assets are not a significant, positive predictor of either children’s

vehicle or home ownership.

• Savings or Asset Accumulation: Four out of 6 studies include any type of children’s

accumulated savings or other asset as an outcome.

o All four studies find that a household asset is a significant predictor of any savings

or asset accumulation for children.

• Debt Accumulation: One out of 6 studies includes any type of children’s accumulated

debt as an outcome.

o Household assets are a significant predictor of debt accumulation for children

when including student loans.


Chapter 6


by Melinda Lewis, William Elliott, Reid Cramer, and Rachel Black


Today, the two major policies to help families afford college do not work well enough for poor

families. Extending student loan opportunities leaves these families and their students with crippling

debt. Meanwhile, asset-building strategies such as 529 college savings plans primarily help wealthier

households. These divergent policy trends have eroded higher education’s ability to serve as an

arbiter of equality in U.S. society, particularly in light of reduced public commitment to educational

institutions and the resulting increases in college tuition.

Demonstration projects and state and local government programs demonstrate the effectiveness of

children’s savings accounts (CSAs) to expand savings opportunities for college. Ultimately, however,

only a federal policy can ensure that all children have access to this opportunity. Federal legislation

should design CSAs with several key features: universality, progressive benefits, lifelong duration,

and asset building.

The Precedent for a National Children’s Savings Account Policy

Over the course of more than 20 years of determined investigation, experimentation, and scholarship

(Adams, Nam, Williams Shanks, Hicks, & Robinson, 2010), children’s savings accounts (CSAs) have

emerged as an asset-building policy that has the unique potential to reimagine effective financial

assistance and to resonate within the current political context. Born out of the asset-building framework,

which identifies financial inclusion as a necessary complement to consumption-based welfare, CSAs

are gaining traction today largely on the basis of their demonstrated potential to influence educational

outcomes. As a vehicle capable of increasing academic expectations and resources to pay for college,

CSAs offer a stark contrast to the current model of financing higher education, which provides assistance

primarily at the point of college enrollment and seeks mainly to improve affordability.

Over the last few decades, higher education has increasingly been seen as an individual pursuit with

benefits concentrated on the college graduate, rather than on the economy or nation as a whole. This

belief has been translated into higher education policy, which has moved decidedly in the direction

of placing cost burdens on individuals and families and away from societal responsibility (Elliott &

Friedline, 2013).

Asset strategies can be conceived as balancing individual and collective interests (Elliott, 2012a).

Approaches like CSAs, which can improve educational and economic outcomes for disadvantaged


children through deliberate investments within an ideological framework that emphasizes individual

responsibility, represent real political prospects for progress.

Moving beyond demonstrations and instituting universal and progressive public policies can ensure

that CSAs send the message to children, including those in low-income families, that “we are in

this together,” rather than “you’re on your own” (Bernstein, 2010, p. 1599). This broadens the case for

CSAs. They are now more than vehicles for engaging low-income children with financial institutions,

cultivating savings habits, or providing additional financial resources; they may represent a solid starting

point for reshaping higher education policy and improving educational outcomes.

Versions of the CSA model have been implemented in recent years at both the state and local levels in

the United States as well as internationally. These efforts establish precedence for a national CSA policy

and diverse experiences to inform its design.

North Dakota and Maine offer savings accounts to children in those states at birth through their system

of 529 accounts. In 2010, the City of San Francisco became the first municipality to create universal

college accounts for public school students. Localities initiating such efforts are clearly convinced of the

collective benefits of investing in children’s human capital development.

Private philanthropy has played a critical role in advancing asset alternatives to financing college

education for low-income children as well. Initiatives like that supported by the 1:1 Fund in Jackson,

Mississippi, and elsewhere have demonstrated many of the same outcomes described in this report:

young children imagine a new trajectory for their futures, parents increase their involvement in their

children’s educational experiences, and families prepare financially and academically for college as a real

possibility instead of a distant dream. 29 Other efforts have incorporated children’s savings components

into youth service, employment, and educational experiences, largely funded with private dollars.

Evaluating these efforts will add to the knowledge base surrounding the educational and other effects

of children’s savings, while, at the same time, providing children with real opportunities to chart a better


Around the world, CSAs are variously institutionalized as part of nations’ economic opportunity

structures, piloted as alternative approaches to welfare provision, and used as levers to help families move

out of poverty (see Appendix I). The expanded scale and variation of implementation of many other

countries’ CSA policies can offer some significant insights into how low-income households engage with

children’s savings opportunities and how policy vehicles can facilitate widespread asset accumulation.

Some countries, such as Singapore, Hungary, and Canada, have national CSA policies, either universal

or targeted (Cheung & Delavega, 2011). Some have developed regional efforts, capitalized by national

or local funding. Additionally, many nations have developed policies that facilitate children’s savings,

not by directly investing in these accounts themselves, but by changing policies about asset treatment

within welfare eligibility or by providing financial education to encourage low-income individuals to take

advantage of savings incentives offered by nongovernmental or commercial entities. Other differences

include income and age eligibility, type and amount of government contributions (initial seed deposits,

matches, incentives for meeting educational goals), and strategies to engage parents in saving (Cheung &

Delavega, 2011).


Similar to the U.S. policy context, there is international debate about whether CSAs are best approached

as a targeted intervention to improve educational and financial trajectories for low-income children,

as more universal entitlements, or as conditional transfers (Cheung & Delavera, 2011). Few of these

countries say that the explicit rationale for child savings efforts is to improve educational outcomes,

rather to eradicate poverty (Cheung & Delavega, 2011). Because poverty alleviation is their primary

purpose, the 10 countries with national CSA policies target populations of low-income children. Some,

such as the UK, have provided universal programs with additional benefits to those in poverty (Cheung

& Delavega, 2011).

While child poverty in the United States has risen in recent years and continues to be a significant

problem, analysis of the current political climate suggests that CSAs may have the greatest momentum

in the domestic policy context when they are explicitly linked to improved educational outcomes. There

is evidence that international CSA efforts have increased asset holding by low-income children—and

children generally, in more universal policies—with fairly high uptake rates in some countries (Loke

& Sherraden, 2009). Evaluation can demonstrate that CSAs are effective in increasing children’s

attachment to financial institutions and access to total assets. To date, however, there has been relatively

little research about the extent to which these policies are reducing poverty among participants

specifically and throughout the national population in general. Research about their effects on economic

and educational outcomes can further inform policy developments in the United States and elsewhere.

Designing a National CSA Policy

Demonstration programs involving different low-income populations around the United States have

proven that, given the right conditions, institutional features, and incentives, poor people can, will, and

do save (Schreiner & Sherraden, 2007). Unfortunately, it is just as clear that the current vehicles for

children’s and families’ asset accumulation—401(k) accounts, 529 plans, traditional home mortgages,

and standard investment products—do not meet the savings needs and aspirations of low-income

Americans (e.g., see Clancy, Lasser, & Taake, 2010, regarding 529 plans). Inclusive asset-building policies

must reduce barriers to saving and provide opportunities and incentives to save. Pursuing these desired

outcomes requires attention to policy features likely to maximize the successful saving of low-income

children and families.

Individual Development Accounts (IDAs), first proposed by Michael Sherraden (1991) at the Center for

Social Development (CSD) to help low-income families build assets and enter the financial mainstream,

have advanced the theory and practice of asset-based antipoverty policy and provided a foundation for a

national CSA policy. Indeed, there is evidence that participation in IDA programs has tangibly improved

the well-being of children in these families, further solidifying the connection between asset security and

child outcomes (Lerman & McKernan, 2008). IDAs are an innovative way to help build assets among

the poor, and their impact has demonstrated the potential of low-income saving, while charting a path

toward institutionalization.

The successes of IDAs have led to significant policy investment in IDAs. The Assets for Independence

(AFI) Act, passed in 1998 (P.L. 105-285), established a federal grant program for asset-building

programs. There are over 200 AFI-supported IDA programs across all 50 states (U.S. Department

of Health and Human Services, 2012). Through AFI, families save in IDAs to meet expenses such


as homeownership, microenterprise, or postsecondary education. Seen as part of this asset-building

continuum, CSAs could be part of a national savings strategy, beginning with accounts at birth and

including efforts to enable young workers to build assets—in part by reducing their dependence on

student debt—and to help people save for retirement ( John, 2010).

There are clear limitations in the IDA design, however, that argue against using it to deliver a national

CSA policy. Policy reforms are needed to bridge the gap between these savings instruments as

proposed—universal, opened at birth—and as implemented—mostly short-term and targeted only to

certain low-income populations. Because of the longer timeline required to save for higher education in

most instances, and because the greatest effects of saving for low-income children seem to hinge at least

in part on the existence of this dedicated account over their academic careers, the IDA vehicle appears to

be inadequate to yield the significant educational outcomes envisioned in discussions of CSAs.

The research linking assets and educational outcomes, much of which is detailed in this report, has

motivated policymakers to pursue children’s savings opportunities and has informed the development of

particular institutional features, which, collectively, can help to ensure that children, their families, and

society glean maximum benefit from this promising asset-based approach.

Over the past decade, a consensus has emerged around the key features of CSA policy: universal scope,

lifelong duration, progressive benefits, and asset accumulation (Cramer & Newville, 2009). This broad

policy agreement represents the outline of a legislative framework and the foundation for advocacy in

pursuit of CSA policy as a vehicle for improving children’s educational opportunities and long-term

economic security. We discuss each of these features in the next section.

Key Features of Evidence-Based CSAs

Universal Scope

There are political and theoretical arguments in favor of including every child of a given age—ideally,

at birth—in a CSA policy. Such inclusion is important for maximizing the economic and educational

benefits of asset building, since even children in higher-income brackets may benefit from the intentional

nature of CSAs (Cramer & Newville, 2009). Additionally, since we now know that individuals and

households tend to move in and out of official poverty ranks, a universal policy approach is better suited

to a more fluid understanding of financial risk and well-being (e.g., Rank & Hirschl, 2001). Public

opinion research has made clear that, while there is considerable embrace of universal children’s account

proposals intended to cover all children, there is not as much support for accounts only for low-income

families (Goldberg et al., 2010). Given that CSAs are envisioned as part of a shift toward an investment

approach to long-term family economic security (Cramer & Newville, 2009), modeling CSA policy on

the principles of collective benefit and responsibility that undergird such entitlements as Social Security

makes political sense. Additionally, including everyone in CSAs might underscore the stake we all have

in each other’s prosperity, which is particularly true when it comes to global competitiveness and the

educational outcomes CSAs can deliver.

Universality, in this policy context, also means inclusiveness, or meaningful access to asset accumulation

by low-income individuals who otherwise may not have truly equitable opportunities (Loke &


Sherraden, 2009). Evidence from CSA policy around the world suggests that inclusivity is elusive, since

nowhere are participation rates 100% or benefits distributed completely equally (Loke & Sherraden,

2009). This speaks to the need for features such as automatic enrollment, concerted outreach and

education strategies, and special incentives for lower-income households, to avoid a “universal” CSA

policy turning into another asset development investment that disproportionately benefits those already

advantaged. Indeed, it is the truly universal nature of CSAs, as imagined, that distinguishes them from

existing vehicles for savings, such as 529 plans, and clearly characterize their unique contributions to U.S.

goals of economic security and educational excellence (Cramer, 2010).

The platform used to deliver CSAs may be the most important variable for achieving a truly universal

policy. As conceived in the ASPIRE Act, a savings account is set up for each child at birth and seeded

with an initial deposit. Since the account would be issued to all children, this policy would circumvent

barriers to account ownership that low-income families traditionally face and would give every child an

ownership stake in his or her educational future. Variations on this construct present other advantages

that should be considered, as well.

A leading alternative to the ASPIRE model is leveraging the existing infrastructure of 529 accounts

offered by the states to provide children with an account. Another option is issuing an account as

students enter the public school system, as is currently in practice through the Kindergarten to College

program in San Francisco and will begin in the fall of 2013 in the College Savings Account Program in

Cuyahoga County, Ohio. While each of these approaches has advantages and drawbacks, analyzing their

comparative merits through the lens of universality suggests some critical policy considerations.

If 529 plans are to be the vehicle for CSAs in the United States, some key policy changes are needed.

More technical changes, including national administration, low initial deposit requirements, and

automatic enrollment, would help to increase participation among the low-income households

underrepresented in 529s (Goldberg et al., 2010). Currently, SEED for Oklahoma’s Kids is testing

this approach in a demonstration funded by SEED, which automatically enrolled randomly selected

Oklahoma families in the state’s 529 plan, with initial deposits, matching contributions, and tax

advantages offered on a sliding scale (Goldberg et al., 2010).

Bundling a universally accessible platform with other key features to maximize participation, such as

automatic enrollment, is critical. Maine, for example, offers a children’s savings account through its 529

system for every child born in the state. However, parents must opt in to participate. As a consequence,

initial take-up has been only 39%. This is in contrast to the near universal take-up among students in

San Francisco’s Kindergarten to College program, which opens an account automatically for all children

when they enter kindergarten. This is particularly important in light of recent research suggesting that

even opening an account with little money in it may still increase the odds of college enrollment (Elliott,


Any features that also increase families’ use of their accounts will increase deposits and the educational

and economic advantages that accrue to children. To this end, investment options should be simple, and

accounting should be streamlined, allowing families to see their account balances grow (Goldberg et al.,



Lifelong Duration

As described above, one of the limitations of IDAs for delivering the kind of educational outcomes

and improvements in financial well-being possible with promoting children’s asset development is their

relatively short-term nature. Because part of the intention of CSAs is to create a system that is flexible

and robust enough to carry individuals through their asset-building needs at various points in their lives,

CSA programs need to keep individuals connected to financial institutions and facilitate their saving

from birth to death (Cramer & Newville, 2009).

Such a lifelong structure would capitalize accounts capable of being saving vehicles for young children

whose dominant financial need is higher education, but also for homeownership and other asset

purchases postgraduation, as well as for retirement savings and continuing education needs for oneself

and one’s children. These are features that 529s, education IRAs, and other restricted accounts are not

well suited to deliver and speak to the need for alternatives to these structures. However, while 529 plan

balances can technically only be used for approved postsecondary educational expenses, the penalty for

alternative use is quite low—only 5% of earnings—which makes 529 plans a potentially broader platform

for universal progressive savings initiatives (Goldberg et al., 2010).

Establishing these accounts in children’s own names would facilitate their use over an extended time

horizon and for flexible purposes, beginning with education and extending to homeownership and

retirement. In addition, they would reinforce the higher education goal for children for whom this is

the primary asset need (Elliott, 2013), since these “dedicated” assets tend to have greater educational

effects (Elliott, Destin et al., 2011). However, there might be alternatives to having the account in the

child’s own name, particularly if financial aid and other policies are not modified to reduce the negative

consequences of child asset holdings. For example, in the SEED OK study, the state owns the accounts

and children receive bank statements in their name, which may help to formulate the college-saver

identity seen as critical to shaping children’s academic expectations.

In our estimation, the ideal CSA policy would be coherent and integrated and woven into existing

institutional infrastructure. Some countries’ approaches approximate this (see, for example, Singapore’s

rolling account structure), while some of the proposed CSA policies in the United States would establish

new structures, reducing the likelihood that the CSAs can build on existing mechanisms and follow

young people as they move beyond education to pursue other asset goals.

Progressive Benefits and Matching Contributions

CSAs should focus on creating advantages for lower-income households to accumulate assets to

compensate for the barriers to saving low-income families face (Boshara, 2003). There is ample evidence

that low-income people and people of color fare comparatively poorly in today’s asset policy structure,

and that children in these households suffer educational disadvantages as a result (e.g., Conley, 1999;

Oliver & Shapiro, 1995; Shapiro, 2004).

While, among those who save, low-income savers save, on average, a higher percentage of their income

than higher-income savers do, the amounts are unlikely to be adequate to reduce dependency on college


loans. Saving families earning less than $35,000 annually have only $2,000 in median college savings

(Sallie Mae, 2009). Until 2007, the median amount of savings low- to moderate-income young adults

had was $390 (Friedline, Elliott, & Chowa, 2012). While even these small amounts, when at least

mentally designated for college, may have significant effects on educational outcomes, the reality of rising

college costs necessitates subsidies for young adults from disadvantaged backgrounds to have equitable

opportunities for success in postsecondary education.

So that CSAs can better address some of these disparities, families’ contributions to CSAs should be

matched to accelerate asset accumulation, engage parents in planning for children’s futures, and leverage

parental expectations and aspirations for their children. Matching funds are a primary vehicle through

which to leverage these outcomes. This match could take the form of a direct deposit into the account

or a refundable tax credit, either of which could be used within a universal account structure or by

leveraging the 529 system. For example, as of September 2012, 23 states had implemented matching

components within their state-sponsored 529 plans. The size, timing, and targeting of these subsidies

vary, and these experiments can help to inform the development of more progressive approaches. In

some cases, one-time grants are available for children regardless of family income. Maine, for example,

has the nation’s most expansive policy, with no income restriction for initial $500 grants available to

start 529 plans before a child’s first birthday and dollar-for-dollar matches for lower-income families’

contributions (Goldberg et al., 2010). In other states, subsidies are targeted toward lower-income savers

(College Savings Plan Network, n.d.) in an effort to parallel the subsidies provided to wealthier savers

through the tax code (Boshara, 2003).

Administrators of state 529 plans are also advocating for federal legislation to extend tax credits currently

available to those saving for retirement, as an incentive for college savings. Unless these tax credits are

refundable, however, they would not provide a financial incentive for saving among households with

incomes too low to trigger a tax liability. The Obama administration has proposed refundable tax credits,

but, to date, only a few states offer such tax credits for 529 contributions (Clancy et al., 2010).

Additional policy innovations could improve progressivity, including removing maximum savings caps, at

least for those with lower incomes, and increasing the adequacy of the progressivity, so that CSAs can be

a tool to significantly narrow wealth gaps (Loke & Sherraden, 2009). CSA policies should strive to be a

potent force for reducing disparities, while offering the power of savings to all American children.

Asset Accumulation

CSAs are best understood as vehicles to accumulate assets, not just to build financial saving habits.

While low-income families, in particular, can benefit from having a savings cushion with which to meet

unanticipated expenses (Cramer & Newville, 2009), the most compelling rationale for CSAs is building

a financial foundation from which to leverage opportunity. When savings are used to purchase other

assets—human and financial—their transformative power is much greater. As Loke and Sherraden

(2009) describe, “[CSAs] are about enhancing opportunities and capabilities of people, empowering

individuals and families to be in control of their lives, and enabling greater participation in the economy.

In so doing, asset-based policies contribute to social and economic development at both the individual

and societal levels.”


Political support for CSAs is greatest when the allowable uses are restricted to assets, and current

legislative proposals largely place some constraints on these account balances. The ASPIRE Act, for

example, restricts accounts to postsecondary education until the age of 25, then allows them to be used as

Roth IRA contributions (Goldberg et al., 2010).

Research suggests, however, that accounts students can access for other uses may increase their ability

to overcome financial obstacles to school success, while building their competence to make financial

decisions (Elliott, 2012b). Tiered account structures (with short-term, intermediate, and long-term

college accounts) would allow low-income children access to some of their assets as they progress in

school, while others are held in reserve. For example, Singapore’s structure, where withdrawals for

specific asset investments are allowed at each stage of childhood, gives disadvantaged children ways to

access development opportunities at critical points (Loke & Sherraden, 2009). Long-term accounts

could be matched at the highest rate, while short- and intermediate-term accounts would be matched

less generously, if at all.

Inherent in achieving the asset-building function of CSAs is the ability of account holders to build

sufficient balances. We suggest that CSAs should facilitate adequate savings to realize the economic

and educational advantages associated with asset development. Emerging research provides additional

guidance about how much is needed to secure these gains. For example, the average student graduates

with about $26,000 in student-loan debt today, while research suggests that debt above $10,000 triggers

a number of negative consequences (Dwyer et al., 2012; Elliott & Nam, 2013b). This suggests that

account balances of around $16,000, in today’s dollars, would be necessary to mitigate the effects of debt

on the average student. In practical terms, this means that—assuming no initial deposit, a 1:1 match on

contributions, and 5 percent interest—families would need to save about $23 per month, starting at a

child’s birth, to achieve $16,000 in savings by the time the child reaches 18.

Other CSA Features for Increasing Impact

One of the lessons learned in the past two decades of research, practice experimentation, and advocacy

around children’s savings is the importance of setting the policy parameters precisely, to ensure

workability, increase the likelihood of positive outcomes, and reduce potential opposition. In this regard,

it is clear that a relatively modest initial government deposit at birth—say, $500—can generate bipartisan

support, while larger initial sums increase opposition (Goldberg et al., 2010). Given this, tools other than

initial deposits might be needed for low-income children to reach the $16,000 balance. Policy features

promoting universal uptake are likely part of the answer; by easing low-income families’ entrance and

directing as much of their savings as possible to their saving goals, low opening balance requirements and

very low fees can help families’ account balances grow. These requirements may necessitate developing

saving vehicles outside of the 529 framework or modifying existing 529 offerings (Clancy et al.). Low

fees are particularly important given the unlikelihood of extremely high returns on the investment

vehicles in which many low-income families would save (Goldberg et al., 2010).

Early intervention is critical here, too. Accounts opened at younger ages allow balances to grow with

time and let children reap the attitudinal and behavioral benefits of asset holding. Children in lowincome

families tend to be older when their families begin to save, largely because there is less money

available to be diverted away from present consumption. Early intervention initiatives, ideally beginning


at birth, might also help to disrupt the negative repercussions of asset poverty, including those associated

with depressed academic achievement (Elliott, 2013b).

Furthermore, national CSA policy should build on all of the capital, including community relationships,

available to disadvantaged children. This suggests that CSAs should allow third-party contributions and

matches to ensure that the matches are high enough to be effective incentives for low-income families’

saving and to help children attract deposits through leveraging social capital for financial and human

capital development (Cramer & Newville, 2009). This would also help build group congruence for

children with their communities, an important element of the development of a proeducation identity.

Conditional cash transfers (CCTs), an antipoverty tool most widely used in the international

development context that channels assistance directly to individuals if they meet specified criteria, could

be an additional method of directing resources to CSAs. In some instances, CCT programs include a

saving component, which has the added benefit of building financial inclusion (Zimmerman and Moury,

2009). A similar model could be implemented to promote savings for postsecondary education, just

as Singapore has done in its Edusave accounts. These cash incentives provide multiple benefits to the

students who receive them. By linking incentives to specific academic outcome or inputs, CCTs reinforce

the behavior that aids in postsecondary preparation. The added resources were also shown to reduce the

financial anxiety of the low-income households that participated in the Family Rewards program run by

New York City, which allowed them to look beyond meeting their immediate need to long-term goals,

like college.

One option for maximizing monies currently being spent on education is financing CSAs with Pell

Grant funds. The Pell Grant program is one of the largest and most important resources for helping

low- and moderate-income students afford college. One way to enhance the program’s impact would be

to add a saving component using CSAs, rather than issuing awards at the time of college enrollment, as

the program currently does. This early commitment approach to Pell Grants could stay within the total

fiscal footprint of the current program but, by manipulating timing, could leverage parental and student

contributions and shape student educational outcomes during the years leading up to college enrollment,

as the grant installments are deposited. Having such funds set aside for individual students early could

motivate more of them to prepare for, apply to, and ultimately complete college.

Alignment and Financial Education Increase CSA Impact

Factors aside from the design of the CSA itself will have an impact on the ultimate success of the policy.

These factors should be considered an essential part of constructing a national CSA policy, particularly

one that has the potential to move the United States beyond divergent approaches to welfare—

consumption-based supports for poor families and asset-building opportunities for wealthier ones—and

to deliver superior educational outcomes for disadvantaged students on a variety of measures.

Alignment with Public Assistance

CSA policy should coordinate with means-tested welfare for those in poverty and with existing

financial aid policies to remove savings disincentives. Current asset limit rules in most means-tested

public assistance programs create disincentives for low-income families to save for college or, indeed, to


accumulate any assets or build saving habits. Potential recipients may interpret these rules to mean that

savings—even for something that they value dearly, such as their children’s educations—are a liability

that must be spent down or avoided altogether so families do not risk being disqualified from assistance

when they need it. To increase savings among low-income families, disincentives to saving should be

removed from the programs with which low-income families interact.

Treatment of different types of savings and assets, including 529s, varies among programs and states. For

example, the Supplemental Nutrition Assistance Program (SNAP, formerly food stamps) has eliminated

529s from consideration when determining program eligibility, but many states still include them when

calculating eligibility for the Temporary Assistance for Needy Families (TANF) Program. Most lowincome

families are not using 529s as their vehicle for saving for college, however. Instead, they are

saving in traditional, nonrestricted products such as checking, savings, or other similar accounts (Sallie

Mae, 2009). All of these accounts are subject to limits on liquid assets in public assistance programs,

which can be as low as $1,000. So, while higher-income households enjoy sizable savings incentives

through preferential tax treatment of 529s, low-income households face what amounts to a steep

marginal tax on their savings, where additional dollars in savings cost them dearly in public assistance


Like public assistance programs, the Free Application for Federal Student Aid (FAFSA) considers both

income and assets when determining the Expected Family Contribution (EFC), which is the basis for

calculating aid. This can create the perception that savings will reduce the amount of financial assistance

a student is awarded and create a disincentive to save and to apply for assistance at all, believing that

even very small savings will disqualify them from aid (Reyes, 2008). This process also judges more harshly

those assets held in students’ own names, despite evidence suggesting that it is precisely these dedicated

school assets that have the most significant effects on educational outcomes (e.g., Elliott, 2013a). There

have been modest reforms on this front, but more are needed. As of 2010, 17 states exempted college

savings held in 529 plans from financial aid determinations, but these same asset protections are not

afforded in the federal financial aid system or to students whose savings are held in other vehicles

(Clancy et al., 2010). Putting in place a hard figure, below which any savings will not count against a

family for financial aid purposes, would allow families to feel comfortable saving long before the FAFSA

needs to be completed, thus increasing the likelihood that students see college as being within financial


As part of their effort to simplify the aid determination process, the Obama administration has proposed

eliminating any financial question that could not be prepopulated with IRS data, including six of the

most onerous questions related to income and assets (Council of Economic Advisers, 2009). They would

replace those questions with just one question asking whether the family owns more than $250,000

in assets, outside of excluded assets such as their home and retirement accounts. This move would be

expected to have negligible cost compared to the benefit of simplification. The administration reports

that in the 2007‒2008 school year, only 4% of financial aid applicants had more than $150,000 in assets.

In addition to aligning CSA policy with public benefits and financial aid rules, CSA policy should align

with tax policy, to encourage individuals to save with tax refunds (Sherraden et al., 2012). In the 2013 tax

season, around 27 million households likely filed for the Earned Income Tax Credit (EITC), a credit that

boosts the value of work for low-wage earners by offering an additional subsidy for every dollar in earned


income. In 2012, the average value of the EITC was $2,200 per household, with a potential maximum

of $5,891 (Internal Revenue Service, 2013). Both the number of families that engage in this process and

the significance of the resources they receive make the tax time moment a powerful savings opportunity.

The Financial Security Credit is a legislative proposal that would allow low-income tax filers to open a

savings account, including a 529, and direct a portion of their tax refund into that account directly on

their tax return (King, 2012). This would facilitate saving in 529s among the families that are least likely

to have an account already and provide a 1:1 match up to $500 as an incentive to save. This approach

would make saving for college simple and valuable. By offering short-term CDs as eligible savings

products, families could also save initially for precautionary purposes and advance to a 529 over time.

These considerations suggest a need for a broad shift in orientation toward asset accumulation, especially

for those disadvantaged in today’s economy, with resulting modifications across key policy spheres.

Financial Education

Saving initiatives should include financial education, in conjunction with savings, to build the total

complement of human and financial capital needed for success in higher education and postgraduation.

This education should take into account the differential access to financial information for low-income

children, compared to their wealthier peers, as discussed in Chapter 5. Financial education is widely

regarded as a component of economic security, and CSAs provide an excellent vehicle with which

to engage children in their financial decisions (Cramer and Newville, 2009). Financial education

components of CSA policy might also be important for political reasons, as the public strongly prefers

including financial content (Goldberg et al., 2010). Here, research, especially evaluation of financial

education efforts, can help to bridge political realities and effective policy design. Policymakers, in

particular, often prioritize financial education as part of any effort to provide disadvantaged Americans

with access to asset-building opportunities, despite offering these same structures to wealthier

households without expecting them to participate in financial literacy programs. However, as discussed

earlier, financial education may not be effective unless participants have concurrent opportunities to

connect to financial institutions and to use their new skills and knowledge. So a universal CSA policy

may provide a platform for offering salient—and, thus, more effective—financial education, while

equipping children, in particular, with more of the full complement of capital they will need to succeed

even after college graduation.

The Economic and Political Contexts of a National CSA Policy

Among the greatest obstacles to CSA expansion today is underinvestment in programs that increase

the well-being of children and promote economic mobility. In 1960, 20% of federal domestic spending

went to children’s programs; in 2007, this figure was 16.2%, and, in 2018, it is expected to be only 13.8%

(Steuerle, 2010). Without shifts in how the United States allocates its resources, this lack of investment

in children could significantly undermine future economic growth. The federal investment in the socalled

mobility budget, including spending that enhances individuals’ earning capability, savings, and

asset accumulation, fares better than investment in children, but the distribution of these resources is

highly unequal (Boshara, 2003). Most spending in this category is dedicated to employer-related work

subsidies, homeownership, savings and investment incentives, and education and training supports,

with only 28% going to programs that provide significant benefits to low-income individuals (Carasso,

Reynolds, & Steuerle, 2008).


State fiscal constraints also affect the higher education opportunities available to American children,

especially those whose limited personal and household resources leave them particularly vulnerable to

reductions in public supports. More than 75% of American college students are in public institutions,

but these colleges and universities—and the educational experience they offer—may not offer the same

pathway to the American dream many imagine. Nationwide, states spent 28% less on higher education

in 2013 than in 2008, and these cuts can be directly correlated with increases in tuition and other fees

as well as reductions in educational quality (Oliff, Palacios, Johnson, & Leachman, 2013). It is within

this educational context that the conversation about needed federal investments takes on even greater


Successfully advancing CSA policy in the United States will require taking advantage of windows of

opportunity, framing CSAs as congruent with prevailing value preferences, and crafting CSAs so they

are positioned as effective solutions to important policy problems (Goldberg et al., 2010).

CSAs also must prove themselves to be a cost-effective alternative to the status quo. Research can open

windows of opportunity by exposing the tremendous efficiencies produced by CSAs. It is possible to

fund the ASPIRE Act—providing dedicated accounts for all U.S. children at birth—for only $3.25

billion in the first year (Cramer, 2006). In comparison, the federal cost of student loans (the subsidy

provided within Stafford Loans, GradPLUS, and ParentPLUS programs) is expected to be $36.5 billion

in 2013 (Congressional Budget Office, 2012). If asset-based approaches to financing higher education

are seen as ways to reduce dependence on debt-heavy ones, then the “net cost” might appear to be

smaller, particularly in light of the long-term financial effects of outstanding student loan (Elliott &

Nam, 2013b). The dramatic potential differences in educational outcomes associated with asset-building

efforts, as contrasted with heavy use of student loans, outlined elsewhere in this report, suggests that

CSAs may be a wise investment of U.S. higher education dollars.

Key Legislative Initiatives: Past, Present, and Future

CSA proposals stem from the early 1990s, with the initial introduction of the KidSave program and,

separately, Michael Sherraden’s book Assets and the Poor. While the immediate policy takeaway from

Sherraden’s work, as described above, was the impetus for IDAs—described as “optional, earningsbearing,

tax-benefited accounts in the name of each individual, initiated as early as birth, and restricted

to designated purposes”—this work also (Sherraden, 1991, p. 220) provided the architecture for what

today are called CSAs. Indeed, practitioners’ experiences with IDA savers, many of whom requested the

ability to save for their children’s college educations, not just their own, helped to spur planning around

children’s savings demonstrations—most notably, the Savings for Education, Entrepreneurship, and

Downpayment (SEED) Demonstration—and, ultimately, CSA policy proposals (Goldberg et al., 2010).

From its inception in 2004, SEED sought to “set the stage for universal, progressive American policy

for asset building among children, youth and families” (Corporation for Enterprise Development, 2008,

p. 2), even though the SEED accounts themselves were time-limited and targeted to children living in

low- to moderate-income households (Adams et al., 2010). As SEED was starting, the idea of universal

children’s savings accounts was highlighted in a New York Times op-ed and in Atlantic Magazine’s/New

America Foundation’s 2003 “Real State of the Union” (Boshara, 2003) as a promising policy and the new

centerpiece of the assets movement. Shortly afterward, a bipartisan group of senators introduced the


America Saving for Personal Investment, Retirement, and Education (ASPIRE) Act. The SEED project,

which ended in 2008, continues to inform policy development around CSAs, including proving that

low-income families can and will save for their children’s futures; over three years, 1,220 children saved

more than $1.6 million in accounts opened through SEED (Center for Social Development, 2007).

While no national CSA policy has yet been adopted in the United States, a number of legislative

proposals have been developed, such as the ASPIRE Act, Young Savers Accounts, 401Kids Accounts,

Baby Bonds, and Portable Lifelong Universal Savings Accounts (Cramer, 2010). Young Savers Accounts

would extend the Roth IRA credit to accounts of children without earned income; PLUS Accounts

would provide a $1,000 one-time deposit to establish retirement accounts for all children born after

December 31, 2007, and mandate employers to devote 1% of pretax wages to such accounts for workers;

and 401Kids converts Coverdell Education Savings Accounts into accounts that could be opened as

early as birth and used for education, homes, and retirement (Goldberg et al., 2010). These policies have

champions across the political spectrum.

The ASPIRE Act, the highest-profile of the proposals, can serve as a model for what a children’s

savings account effort that adheres to the principles of universal, progressive, lifelong, and asset building

would look like. ASPIRE would create Lifelong Savings Accounts for every newborn, with an initial

$500 deposit, along with opportunities for financial education. The endowment for the deposits would

come from the KIDS Account Fund within the U.S. Department of the Treasury (Loke & Sherraden,

2009). Children living in households with incomes below the national median would be eligible for

an additional federal contribution of up to $500 at birth and a savings incentive of $500 per year in

matching funds. Annual 1:1 matches would be capped at the first $500 contributed and phased out for

households with incomes between 100% and 120% of the national median adjusted gross income (Loke

& Sherraden, 2009). Private, voluntary after-tax contributions, capped at $2,000 annually, could be made

to each account until the holder reaches age 18. When account holders turn 18, they would be permitted

to make tax-free withdrawals for costs associated with postsecondary education or, after age 25, firsttime

home purchase or retirement security. Contributions after age 18 would be permitted according to

Roth IRA rules (Loke & Sherraden, 2009).

Resourcing CSAs, such as the one created by ASPIRE, by linking them with Pell Grants to redeploy

that critical financial aid program as an early commitment to children’s educational and financial futures,

may be one of today’s most promising policy recommendations for enabling low-income children and

their families to build significant amounts of assets for college. Such action also presents the political

advantage of using monies already dedicated to higher education financing.

Conversations about using Pell Grants as an early commitment program started without considering

linking them to CSAs (e.g., ACSFA, 2005; 2008; Heller, 2006; Schwartz, 2008). Recently, however, the

College Board (2013) recommended supplementing the Pell Grant program by opening savings accounts

for children as early as age 11 or 12 who would likely be eligible for Pell once they reached college

age and making annual deposits of 5% to 10% of the amount of the Pell Grant award for which they

would be eligible. While such proposals have met with concerns that children who are low income in

middle school, for example, may not be low income when they reach college age, research suggests that

constrained economic mobility in the United States may make this less likely than one would imagine

or hope. Examining a group of children who were eligible for free lunch while in seventh grade, Heller


(2006) found that only 18% were no longer eligible for free or reduced lunch as juniors in high school.

He also found that 80% of children eligible for the free lunch program were also eligible for the Pell

Grant. Heller concludes, “The risk of doing this—that some student may receive a grant who otherwise

would not be eligible under current rules—is relatively low, especially in light of the potential value of

promising them funds for college much earlier in their academic careers” (p. 1735).

To enhance the impact of this investment, we suggest that accounts should be opened at birth, even

though the Pell Grant money would not be made available until ages 11 or 12. By these ages, one could

determine more accurately whether children receiving the Pell Grant funds would remain poor through

the time of college enrollment but be early enough to affect formation of their identity as a college-saver

(i.e., someone who is college-bound and who sees saving as a strategy for helping paying for college).

Opening the account at birth may begin to set children’s sights on higher education so these students

are more likely to be on a college track when Pell Grant funds are being allocated. This is a universal,

lifelong, progressive policy that has a real chance to increase college attainment and build assets among

all of our citizens, while leveraging resources already earmarked for college financing.

Recently, Senators Chris Coons (D-DE) and Marco Rubio (R-FL) reintroduced a bipartisan proposal to

create college savings accounts for low-income students and monitor higher education readiness through

a personal online account. The American Dream Accounts Act (S. 918 in the 113th Congress) would use

existing Department of Education dollars to encourage development of online platforms that partner

students with college, schools, nonprofits, and businesses, to provide children with savings accounts and

other college readiness tools, explicitly linking asset foundations and educational outcomes. These various

developments should not be considered competing approaches, but, instead, distinct and potentially

complementary options for answering program structure and delivery questions in children’s savings

account policy, in light of mounting evidence demonstrating the value of using asset accumulation to

improve higher educational attainment and address pervasive educational and economic disparity among

children in the United States.

Research Questions to Guide Further Policy Refinement

While research supports asset development as a way to open the door to higher education for more lowincome

children, additional research is needed to inform the particulars of CSA policies. For example,

the literature on CSA policy is currently open to alternatives regarding the best place and structure for

account management. There are arguments for building on existing asset-accumulation mechanisms, such

as 529 plans, or for instituting universal children’s savings efforts that stand alone as investments in child

well-being (Cramer, 2010). Related are questions about the best roles for private financial institutions in

CSA administration (Cramer & Newville, 2009).

Other outstanding research questions related to CSA policy include:

1. What, precisely, are the threshold dollar amounts of savings needed to realize positive

educational outcomes, and how sensitive are these thresholds to increases in average

college costs and expected postgraduation incomes?

2. With limited resources, should incentives (such as matches) be targeted to achieving

savings goals or educational milestones?


3. What are the best ways to combine these to support students’ financial and academic


4. To reap the maximum psychological and behavioral effects of saving, do students need to

manage their own accounts directly, or is it enough to have the savings held in their

names and restricted for college?

5. Do the savings effects that we see in young adulthood persist throughout students’ lives?

Are they transmitted effectively across generations?

6. What are the best savings vehicles through which to deliver CSAs—regular bank deposit

accounts, CDs or other restricted savings vehicles, or 529 tax-advantaged college


7. To what extent can the tax system deliver financial subsidies and incentives to lowincome

families, through refundable credits, in particular?

8. What might be roles for matched contributions from private entities, like employers

and nonprofit organizations, and how would the attitude and behavioral effects seen as a

result of contributions from these sources differ from those realized when children and

parents are saving themselves?

9. How can asset research inform existing college financial aid practices, including needand

merit-based scholarships, which might be structured more as promise programs, to

shape academic performance leading to college preparation?

10. How might Pell Grants and other need-based financial aid learn from the research on

asset initiatives to incorporate elements of early commitment programs into their


CSAs Solve Higher Education Policy Challenges

Given the current fiscal climate, finding ways to get the most out of money spent on college loans,

scholarships, and grants is one way to reframe the 21st-century discussion about how to finance

college, and asset building may be a way to maximize the benefits of going to college. For example, as

college debt skyrockets and takes longer to pay it off, adults may receive less of a financial return on

their educational investment. Having assets may help reduce the debt burden on students and their

families, and thus increase the value of a college education. In addition, if having savings helps children

engage in school at an early age, it might allow them to take better advantage of their primary and

secondary education and position them for greater college achievement. Given the relationship between

engagement and academic attainment, the prospect of affecting children’s orientation toward their

education for relatively small initial investments is worthy of greater attention. Also, if having savings as

a child is associated with higher rates of saving throughout adulthood, children may be more likely as

adults to maximize the financial benefit of having a college degree.

This is a 21st-century strategy not only for making college more accessible but also for ending the cycle

of poverty. By rewarding hard work in school and asset accumulation, this strategy need not cost more

than the current, debt-centric system if existing funds are reprioritized. Instead, it could be largely

financed using money already committed to education, but in a smarter way.


Key Points

CSAs hold the promise of extending asset-building opportunities and their associated educational

outcomes to all children in the United States. CSAs should be part of a 21st-century financial aid

system, as a complement to student loans and an alternative to the entirely debt-centric model

that is underperforming on key indicators. Because higher education has significant societal

benefits beyond those accruing to individual students, CSAs may make considerable contributions,

indirectly, to U.S. objectives of economic prosperity, global competitiveness, and greater equality.

• Among researchers and policy advocates, there is near consensus on key features of

CSAs: they need to be universal, progressive, lifelong, and asset building.

• U.S. policy currently invests heavily in asset development, but the overwhelming

benefit of these initiatives accrues to higher earners. These savings incentives,

delivered primarily through the tax code, do work, but to ensure that education

can serve as an equalizing force in U.S. society, alternative supports for lowerincome

children and families are needed.

• Policymakers should study the lessons of asset initiatives pursued by states and

localities, as well as in other countries.

• Research offers further implications for CSA design: matching contributions must

be sufficient to help low-income families avoid high-dollar debt; accounts should

have few barriers to deposits; assets should be held in children’s names whenever

possible; more alignment with public assistance programs is needed; savings

initiatives should be paralleled by college-preparatory efforts; and early intervention

is preferable, given asset effects over a lifetime.

• Additional research is needed to inform policymakers’ choices about account

structure, incentives, match levels, and administration, among other questions.

• As U.S. policymakers explore initiatives to implement asset-based principles in

current policy structures, momentum for shifting Pell Grants to early commitment

investments may represent a promising opportunity to leverage existing financial aid

dollars for more positive impact.




We do not know, however, whether these types of student expectations have an effect on enrollment outcomes.


Sallie Mae (2011) defines low-income as less than $35,000 and high income as $100,000 or more.


One example can be found in the Homestead Act (Williams Shanks, 2005), which allowed citizens willing

to move west to qualify for land. All they had to do was put forth the effort and have the ability necessary for

cultivating the land.


Theories like locus of control (see Rotter, 1966) imply that people focusing on the institutional aspects of efficacy

is unreasonable.


We say that the expectation that one is college-bound is normative because research suggests that most children

expect to attend college regardless of socioeconomic status or race/ethnicity (Kao & Tienda, 1998; Mello, 2009).


As a result, what lower-income and minority parents can model to their children in regard to things like financial

education is limited by the resources to which they have access.


Net price calculators offer the potential to give students a slightly earlier estimate of their aid packages, but these

have yet to be universally implemented (Cheng, Asher, Abernathy, Cochrane, & Thompson, 2012) and still target

high school juniors and seniors. A recent poll by the College Board and Art & Science Group (2013) found that

only 16% of students with household incomes below $60,000 used the calculators. The federal government’s Free

Application for Federal Student Aid (FAFSA) “FAFSA4caster” (http://www.mymoney.gov/content/fafsa4caster.

html) also gives students an earlier estimate of their aid packages (as early as middle school), but knowledge of this

website appears to be very low.


Estimates suggest that the number of Pell Grant-eligible students who fail to file for financial aid range from at

least 500,000 students (Novak & McKinney, 2011) to as many as 1.5 million students annually (King, 2006). At

community colleges, at least one-fifth of all students in the lowest income categories (below $20,000 per year) do

not file the FAFSA (ACSFA, 2008), and many file late because they think the FAFSA is complicated and takes

too much time to fill out (LaManque, 2009).


The figures for 2011‒12 are preliminary and subject to revisions. Additionally, the $105 billion in loans is the

total dollars of loans disbursed; the federal government eventually recoups most of the funds through repayment.


This is the number of questions as of the 2012–2013 academic year. Over 22 million students submitted the Free

Application for Federal Student Aid (FAFSA) for the 2011–2012 academic year, a 5% increase over the prior year.

This includes 52% of all graduating high school seniors in the United States (Snyder & Dillow, 2011).


More information on these early commitment programs can be found in Blanco (2005) and Harnisch (2009).


See Vaade (2009) for a list of these programs.


In Chapter 2, the process of internalization is discussed within the institutional facilitation framework.


See http://videocafe.crooksandliars.com/heather/mitt-romney-tells-ohio-students-borrow-mon.


Asset poverty is measured in the form of both liquid assets and net worth. In the case of liquid asset poverty, it

is defined as a family that does not possess a level of assets that would allow its members to live at 75% of their

annual income for one month. Net worth asset poverty is defined as a family that did not have sufficient wealth to

live three months at the poverty line using the U.S. Census poverty threshold measure. An assets shock is defined

as a drop in assets of 25% or 50% from one five-year period until the next for both liquid assets and net worth.


For a more detailed conversation on this topic see Chapter 2.


Hahn and Price (2008) defined college-qualified as having, “at least a 2.5 grade point average (GPA), taken a

college preparatory curriculum, and completed Algebra I or II, Pre-calculus, Calculus and/or Trigonometry” (p. 4).


College-qualified referred to high school graduates who had taken at least trigonometry.


The 3 of 18 studies with mixed results are identified when an asset (e.g., net worth, liquid asset, or

homeownership) is significant for one sample of children and not for another. For instance, a study is identified as

having mixed results when assets are significant for White children and not for Black children or vice versa.


Mixed results are identified when an asset (e.g., net worth, liquid asset, or homeownership) is significant for one

sample of children and not for another. For instance, a study is identified as having mixed results when assets are

significant for White children and not for Black children or vice versa.



A child has a college-saver identity when he or she expects to graduate from college and has identified saving as

a strategy for helping to pay for college expenses (Elliott & Nam, forthcoming).


Behavioral economics and the theory of asset effects are both notably absent from this list, as few studies

test behavioral economic and asset effects explanations of children’s savings. This is not to say that behavioral

economics has not been applied to children generally speaking. Rather, behavioral economics has been applied

infrequently to the context of their saving behaviors. For two exceptions, see Lahav, Benzion, & Shavit, 2010, and

Marshall, Chuan, & WoonBong, 2002. We will know more about the role of choice architecture (heuristics, time

horizons/discount rates, rules of thumb, loss aversion) as behavioral economics is increasingly applied to children’s

saving behaviors.


Additional studies such as those by Berti and Bombi (1981a, 1981b), Jahoda and France (1979), and Ng (1983,

1985) examine the role of development for children’s acquisition of financial knowledge like stocks and insurance.

Findings from these studies provide context for understanding how children’s development relates to their ability

to integrate knowledge about money and finances; however, they do not emphasize children’s saving. The six

identified studies, which build on the broader developmental research in economic psychology, focus specifically

on children’s saving.


It should be noted that children at age 12 were not always more successful at saving tokens than their younger

counterparts. Older children’s success at the game could still be undermined even though they used more

sophisticated saving strategies. For instance, knowledgeable and well-intentioned adults assumed to use more

sophisticated saving strategies than children do still miscalculate their grocery bills.


The 12-year-old boy from New Jersey had his $300 life savings returned to him by the recycling company. The

family from Tel Aviv was not as lucky—reports to date suggest that the $1 million life savings were lost.


Approved expenses typically include education, entrepreneurship, home ownership, and retirement. Other

expenses like the purchase of a car or taking a vacation are typically considered unapproved and subject to fees or

forfeit of any match incentives.


It is important to point out and make explicit that, while there is a greater need to recognize the role of children

in the development of their own college-saver identities, and while in some cases it might be necessary for CSAs

to replace parents when they are unable or unwilling to fulfill their role as economic socializers, ideally CSAs

would augment the role of parents.


Self-efficacy is defined as people’s beliefs about the effectiveness of using their individual resources to produce

designated levels of performance that exercise influence over events that affect their lives (see Bandura, 1997).

Institutional efficacy is defined as children’s beliefs about the effectiveness of using institutional resources to

produce designated levels of performance that exercise influence over events that affect their lives.


For more information about the 1:1 Fund, see http://www.1to1fund.org/.


Changed in 2008 to cover all children.



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